In recent months, experts have been anticipating the Federal Reserve’s decision to end their ongoing monetary tightening. In September, the Fed finally made a move by cutting the Effective Federal Funds Rate (EFFR) by 50 basis points. While this may not immediately result in an influx of funds into the market, according to a report from CBRE, it could be positive news for commercial real estate performance as part of an easing cycle.
To reach this conclusion, CBRE analyzed past instances of Fed fund rate cuts and how they affected commercial real estate markets. They found that based on NCREIF Property Index (NPI) all-property total returns data, “commercial property has consistently performed well for one, two and three years following the start of 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 credit markets were restricted.
This is not currently true as noted by CBRE analysts who stated that “near-term property performance could benefit from a strong economy and continued NOI growth.” Additionally there are signs indicating increased investor activity.
But while overall optimism can be seen in CRE sectors performing differently with office spaces facing challenges due to high vacancy rates and potential financial struggles.
