Commercial real estate executives say this year’s increase in interest rates is what has them the most worried about the impact to commercial real estate markets in 2018, according to a new sentiment survey released by Seyfarth Shaw, a law firm. Commercial executives are bracing for multiple rate increases throughout the year, too.
Low unemployment and a strong economy should be giving a boost to the executives’ outlook, but instead they said that could derail their optimism by the threat of rising borrowing costs.
“Industry insiders expect today’s economic factors to force the hand of the new Federal Reserve chair and, consequently, shape their 2018 investment strategies,” according to the researchers in the study. “Respondents clearly believe that multiple interest rate increases will start to have a material adverse impact on the commercial real estate market.”
About 63 percent of 157 executives surveyed believe the U.S. commercial real estate industry can absorb an interest rate increase of between 0.5 percent and 1.5 percent. About 15 percent of commercial executives say the markets can only comfortably handle an uptick of up to half a percentage point. A similar percentage of execs say the industry could take a 1.5 percent to 2 percent in increases.
Investors may not be as concerned about rate hikes, however.
“Despite the possibility of escalating interest rates, the vast majority of investors intend to acquire assets in the Americas,” says Brian McAuliffe, president of institutional properties in CBRE’s Capital Markets group. “Risk tolerance is expected to remain unchanged but investors’ search for yield and asset diversification is pushing them toward value-add assets, secondary markets and alternatives [assets] in 2018.”
A CBRE Americas Investor Intentions Survey found that respondents were more optimistic heading into 2018 than compared to last year due to economic expansion, new U.S. tax cuts, and regulatory changes. Forty-five percent of respondents said they planned to increase acquisitions in the Americas over the last year. That marks a reversal of a downward or flat trend from two years prior.
As such, commercial executives may have less to worry about. The top three concerns they identified in the Seyfarth Shaw sentiment survey were rising interest rates, challenging supply and demand fundamentals, and the “end of the current growth cycle.”
Source: “Survey: Expected Interest Rate Increases This Year Remain Top Concern Among CRE Execs,” CoStar Group (Feb. 27, 2018)
