In recent months, many experts have been eagerly anticipating the Federal Reserve’s decision to end its monetary tightening efforts. In September, this finally happened as the Fed cut the Effective Federal Funds Rate (EFFR) by 50 basis points. While this may not result in an immediate influx of funds into the market, a new report from CBRE suggests that it could be positive news for commercial real estate performance.
To reach this conclusion, CBRE analyzed past instances of Fed fund rate cuts and their impact on commercial real estate markets. They found that based on NCREIF Property Index (NPI) all-property total returns data, “commercial property has consistently performed well in the one to three years following a new rate-cutting cycle,” according to analysts at CBRE.
However, there were some exceptions:
– The three years after 2007’s rate cuts during the Global Financial Crisis
– The three years after 1989’s rate cuts during Savings & Loan Crisis
In both cases above situations where credit markets were constrained.
This is not currently true for today’s market though. According to CBRE analysts: “Near-term property performance could benefit from a strong economy and continued growth in net operating income.” Additionally, there are signs of increased investor activity.
Despite these positive indicators overall for CRE performance post-rate cut cycles , it should be noted that different sectors within CRE may experience varying levels of success. For example,the office sector continues to face challenges due high vacancy rates and potential financial distress according to analysts at CBRE.
Overall , while there are still some concerns about certain sectors within commercial real estate following recent interest rates changes bythe Federal Reserve ,CBR E ‘s report offers cause for optimism . As we move forward,it will be importantto continue monitoring how these changes affect various segments within CRE,and adjust strategies accordingly.
