Michael Gerard is Marketing Director at GRS Group
(949) 272-0022
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The anticipation is not ending when it comes to interest rates.
At the beginning of the year, economists seemed pretty confident that rates would increase this month. Now, the consensus seems to be that the Fed will wait until June to bump up rates.
Fed officials are meeting today and tomorrow to discuss rising rates–which they have not made a move on since December–despite heavy speculation that there would be an increase due to an improving U.S. economy. But global economic instability, especially in China, has put Fed members on pause.
Leading economists are now under the impression that conditions will improve enough to increase the rates in June.
Interest rates are now holding steady at between 0.25 percent and half a percentage point. Several observers see rates hitting 0.96 percent by the end of the year, not a major boost that should impact commercial real estate, as investors are generally working an increase into how they price potential deals.
Despite all of this, some on Wall Street are calling for an interest-rate increase in March. The thinking is that increased employment growth, energy prices and a jump in the S&P 500 has given the idea increased viability.
Commercial real estate executives are pretty bullish on the economic situation in the United States. There is a lot of foreign money hitting this country because of its perceived security, and much of it is going to commercial real estate assets. Now there is an increased focus on secondary markets, where returns are higher, especially in the multifamily sector.
Though CRE executives are concerned about a lack of employment growth, they still expect GDP to increase at a positive (though not major) level.
The bottom line is that commercial real estate fundamentals are strong. Unless that changes, there is probably not going to be a big drag on the industry if rates rise slightly over the coming years.