What an Interest Rate Hike Means for CRE
Two things happen this week that we haven’t seen in nearly a decade: the release of a new Star Wars movie and an interest rate hike. Both of these might keep you up at night: the first as you wait in line for premiere tickets, and the second as you consider what the hike means for your business.
Market Share looks to the experts for how an interest rate hike might affect CRE, and here’s what we found:
REITs: Wealth Management says that rising interest rates have conventionally been bad news for REITs, as REIT dividends become less attractive as bond yields rise. This isn’t always the case though: Forbes says that over the two year period of June 2014-August 2006, as short-term rates jumped from 1 percent to 5.25 percent, REIT investors were rewarded with a 60 percent return, beating the stock market’s own 20 percent rise. Could history repeat itself this go-round?
Investors: Real Estate Weekly says an uptick in lending rates usually translates into lower cash returns for investors who use leverage to buy investment properties. Conversely, interest rates imply that the economy is improving, and that could lead to higher demand for commercial property, and potentially higher rental rates.
Property Values: The Wall Street Journal says analyst warn that property values could sink if interest rates rise sharply. Another bubble? A surge in rates could have ramifications across global financial markets, especially if falling prices initiate a wave of mortgage defaults.
What do you think an interest rate hike will do for the industry? Sound off in the comments and share your feedback with Market Share readers and subscribers.
Kathryn Hamilton, CAE, is Vice President for Marketing and Communications at NAIOP Corporate.