Rising Interest Rates And What That Means to CRE
It is no secret that interest rates keep bumping up. Cap rates and valuation of commercial real estate assets are directly correlated. This increase in interest rates leaves the professionals on both sides of the industry no choice but to take note. Sellers will soon see the caps that they once were able to fetch becoming increasingly difficult to match in this rising market. Buyers who are looking to leverage are having a very difficult time making up for the short fall in cash flow due to the increase of rates. Asking prices for assets hitting the market in the next few months will have to be adjusted to reflect the jump that interest rates have taken.
This fluctuation is nothing new for the real estate industry. In my opinion caps have to adjust to meet the market. They have been pushed so far down and now with the 50 bps bump in rates buyers will soon be seeing price adjustments in their favor. 3Q and 4Q should bring deals for buyers so hold tight!