**Commercial Real Estate: Beyond the Fed’s EFFR Rate**
The Federal Reserve reduced the Effective Federal Funds Rate (EFFR) by 25 basis points on September 17, and many market participants expect further rate cuts to follow in October, December, and into 2026. While interest rate adjustments often garner the most headlines, the commercial real estate (CRE) landscape depends on a wide range of economic indicators and fundamentals.
In a recent video released by Marcus & Millichap, “The Fed Cut Rates: Now What?”, Senior Vice President John Chang emphasized that while lower rates could help, they are not the sole catalyst for CRE performance. Chang noted that if the 10-year Treasury yield remains around the 4% range, it could support increased real estate activity. He also highlighted that debt capital liquidity remains strong, with multiple active lenders and stable spreads. “Rates are comparatively low right now, and investors have a window to lock in their financing,” he stated.
Chang underscored the importance of monitoring the job market—something the Federal Reserve also watches closely. CRE investors should take a similar approach, especially as employment dynamics directly impact several property sectors.
In the office sector, Chang noted that a slowing job market might ironically support demand, as more companies refine return-to-office strategies. National office absorption has been positive for five consecutive quarters, although results vary across local markets. “There is momentum in more than half of the major metros across the U.S.,” he said.
Retail continues to perform well, buoyed by robust consumer spending even amidst economic headwinds like tariffs and a softening labor market. Inflation-adjusted core retail sales rose 2.2% year-over-year, with gains led by apparel, restaurants, and e-commerce.
Multifamily is also a sector to watch closely. Over the past year, apartment absorption has remained strong. However, if 10-year Treasury yields stay near 4%, mortgage rates for single-family homes could dip, potentially spurring a wave of first-time homebuyers. While this could reduce the renter base, the greater concern, according to Chang, is the softening job market. The unemployment rate among prime renter-age individuals (20–24 years old) stood at 9.2% last month, which could strain household formation and, in turn, rental demand.
Nonetheless, apartment development has slowed, which could help maintain a healthy balance between supply and demand, limiting the risk of rising vacancies.
Chang concluded by stressing the importance of tracking interest rates and recognizing that multiple economic forces are at play. These dynamics could shift market trends significantly, underscoring the need for investors to remain alert to broader macroeconomic indicators, not just rate cuts.
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