Over the past few months, there has been a noticeable increase in long-term interest rates. A rising interest rate environment will likely test the sustainability of the recovery in commercial property values. While operating fundamentals for income properties have improved modestly, most of the increases in pricing have been driven by exceptionally low interest rates. Higher interest rates can be expected to lead to a number of adjustments. Overall price appreciation should slow and demand will likely gravitate even further toward areas where operating fundamentals have improved the
most and prospects remain the brightest. Today, that still means the apartment sector where demand continues to be strong, and rents adjust relatively quickly. Industrial properties should also hold up relatively well, principally due to continued strong growth in online retailing, the energy boom and improving sentiment in the manufacturing sector. Demand for well-located office and retail properties have turned the corner as well, but the pace of recovery has been much slower and the improvement remains spotty.
For this quarter’s full market analysis, read the full report.