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Commercial Real Estate: A Cause for Optimism
Over the past several months, multiple experts have awaited the Federal Reserve to put an end to ongoing monetary tightening. In September, the Fed did so, cutting the Effective Federal Funds Rate (EFFR) by 50 basis points. While this doesn’t mean that dry powder will suddenly start flowing into the market, the Fed’s actions—combined with an easing cycle—could be good news for commercial real estate performance, according to a CBRE report.
In coming to this conclusion, CBRE examined the historical context of Fed fund rate cuts and the behavior of the commercial real estate markets. In examining NCREIF Property Index (NPI) all-property total returns, “commercial property has consistently performed well for one, two and three years following the start of a new rate-cutting cycle,” the CBRE analysts said.
There were a couple of exceptions to the above, however:
- The three years following the 2007 rate cuts (Global Financial Crisis)
- The three years following 1989 rate cuts (Savings & Loan Crisis)
In both of the above situations, credit markets were constrained.
That isn’t the case right now. The CBRE analysts noted that “near-term property performance could be boosted by a resilient economy and continued NOI growth.” Furthermore, there are signs of an increase in investor activity.
But the CBRE analysts cautioned that not all CRE sectors perform equally. “The office sector remains particularly challenged by historically high vacancy levels and the prospect of financial distress,” they added.
- ◦Financing
- ◦Economy
