Commercial Real Estate Interest Rates: Where we Are, Where We’re Going

What trends are expected to dominate the commercial real estate industry this year, and how will those trends affect interest rates? From the rise of opportunity zones to a slowdown in industrial absorption, here are some trends that experts forecast for the interest rates in 2019.

Based on market research, commercial property prices have stabilized, a trend that is likely to continue for the next six to twelve months.

Prices on commercial properties have cooled over the past couple of years as interest rates have stopped declining and actually going in the other direction.

A Recap on 2018 Interest Rate Trends

In 2018, we saw a total of four interest rate increases, and at the year’s end, industry experts were already looking ahead into 2019, expecting more hikes. Investors were mindful of the trend and, in many cases, already began structuring deals accordingly.

As the economy continues to do well, the Federal Reserve is expected to continue to raise interest rates. That said, investors are showing concerns that continued increases could trigger a flip in the yield curve, signaling that a potential recession could be on the way. With this in mind, it’s understandable that investors are wondering when this next downturn might occur.

2019 Interest Rates: Predictions for the Year

While some owners have decided to lock in long-term rates as soon as assets qualify, there has also been a renewed focus on provisions that future buyers might find favorable if they assumed in-place debt, such as transfer and secondary financing rights.

Getting a good rate now with the right structure can add major value, especially if interest rates do increase as expected. Some developers face greater risk today than they did even a few years ago, and are instead looking into the lending and preferred equity business, according to Ginsberg Jacobs LLC, a Chicago-based real estate law firm.

“Developers can stay in their ‘lane’—be it geographically or through asset class—while shielding themselves from part of the risk,” Ginsberg said. “Because they’ve done similar projects before, they understand the developments better than anyone, and if needed, can step in and see the project through as the developer.”

Ginsberg and other commercial real estate advisors believe that despite the knowledge that real estate is a cyclical business, the situation that we’re in now is far healthier and presents less risk than it did a decade ago. While there may be an eventual slowdown, real estate experts don’t anticipate a crash like the one experienced in 2008, in part due to much more discretion on both sides since then.

Lenders and borrowers are putting safeguards in place to ensure mistakes are not repeated, and in many cases, making more conservative projections when it comes to rent or price growth.  

A Commercial Real Estate Firm You Can Trust

Piedmont Real Estate Group is active throughout the entire Atlanta metropolitan area, but our reach extends beyond Georgia. We are licensed brokers in the states of North Carolina and Florida as well.

We are also privileged to represent many of our clients in their real estate needs throughout the United States. If you have questions about the current interest rate trends or about looking for properties, please contact our office.

At Piedmont, we are thinking. About you. And the world around us. Let us help guide you as you seek to make sound real estate decisions.

Stay well and stay tuned…

Jeff Pittman
President | Principal

By |2019-01-28T20:01:03+00:00January 28th, 2019|News|