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Impact of Interest Rate Normalization on CRE Investment

Real estate investor concerns about rising interest rates may be overblown, with the likely increase to be much less than the consensus of economic forecasters and well below pre-2008 levels, according to CBRE research. Since the Great Financial Crisis (GFC), long-term interest rates have fallen and commercial real estate has been in high demand from investors.

Capitalization rates (yields) have fallen substantially, driving a substantial across-the-board increase in property prices. Since 2009, global commercial real estate prices have risen by 85%.

New analysis by CBRE suggests that real U.S. long-term interest rates will increase to only 0.9% in 10 years, much less than the consensus forecast of 1.6% or the pre-GFC average of 2.4%. With inflation stable at 2%, this equates to a 2.9% yield on 10-year U.S. Treasury bills, no change from the current rate. CBRE forecasts for nominal long-term interest rates effectively put a ceiling on the cyclical highs for short-term policy rates. This still implies higher policy rates than today, but well below pre-GFC levels

CBRE Global Chief Economist Dr. Richard Barkham says, “It is unlikely that the rise in interest rates will be anywhere near as sharp as some economists predict. Interest rates were falling long before the GFC, due to global demographic factors, and these powerful forces remain in play, limiting the extent to which central banks or politicians can hike rates. This is good news for real estate. As a consequence, institutional investors, who are loaded up on bonds, may struggle to meet retirement-income requirements in a period of sustained low real interest rates. As is now widely recognized, real estate is part of the solution.”

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About Dennis Kaiser

Dennis Kaiser is Vice President of Content and Public Relations for Connect Commercial Real Estate. Dennis is a communications leader with more than 30 years of experience including as a journalist and in corporate and agency marketing communications roles. He is responsible for Connect’s client content operations and is involved in a range of initiatives ranging from content strategy, message development, copywriting, media relations, social media and content marketing services. In his most recent corporate communications roles, he led a regional public relations effort across Southern California for CBRE, played a key marketing role on JLL’s national retail team, and was responsible for directing the global public relations effort at ValleyCrest, the nation’s largest commercial landscape services company. In addition to his vast commercial real estate experience, Dennis has worked on communications and launch strategies for a number of residential projects such as Disney’s Celebration in Florida, Ritter Ranch in Palmdale California (7,200 homes, 22,000 acres), WaterColor in Florida and PremierGarage in Phoenix. Dennis’s agency background included firms such as Idea Hall and Macy + Associates. He has earned an outstanding reputation with organization leaders as a trusted advisor, strategic program implementer, consensus builder and exceptional collaborator. Dennis has developed and managed national communications programs for Fortune 500 companies to start-ups, both public and private. He’s successfully worked with journalists across the globe representing clients involved in major-breaking news stories, product launches, media tours, and company news announcements. Dennis has been involved in a host of charitable and community organizations including the American Cancer Society, Easter Seals, BoyScouts, Chrysalis Foundation, Freedom For Life, HOLA, L.A.’s BEST, Reach Out and Read, Super Bowl Host Committee, and Thunderbirds Charities.