The Federal Reserve Board’s 25-basis-point increase today will not have a significant impact on commercial real estate (“CRE”). Today’s increase could signal a slight weakening of investor demand for CRE, as lower risk investments like treasury bonds begin to look more attractive. However, other reasons suggest CRE prices and returns will continue to be attractive, even in a rising interest rate environment, including: (1) inflation, as a major driver of longer-term yields, is expected to remain below 2% over the next 10 years; (2) improving economic conditions, evidenced by steadily increasing jobs, leads to increased leasing and rents; (3) the U.S. continues to shine as an investment safe-haven (compared to most other countries), attracting massive amounts of capital from around the world; and (4) the Fed seems intent on a slow and gradual approach to tightening the money supply in the foreseeable future.
