In the ever-changing landscape of commercial real estate, understanding the impact of rising interest rates is crucial. As noted by experts at EY – US, a strong economy can sometimes offset the negative impacts. Various factors such as economic growth, inflation, and market conditions influence this complex relationship.
This has limited effects on current property owners with a fixed mortgage rate but will impact potential purchasers needing new financing. For those with variable-rate mortgages, the impact can be immediate, leading to increased monthly payments. Meanwhile, trying to recapture those increased holding costs in rents can also lead to increased vacancy rates as higher costs may deter new tenants.
So, what strategies can investors employ to mitigate these impacts? Proper research and due diligence are key to making informed decisions. Locking in current rates with fixed-rate mortgages can protect against future rate increases, and diversification across different asset classes can also provide a hedge against interest rate risks.
Reports indicate that increased borrowing costs have led to a decline in commercial retail property values. Real-world examples and expert insights further underline the importance of understanding this relationship. As interest rates increase, the cost of owning increases, resulting in either the return to the equity declining and/or an increase in the capitalization rate. Currently in the Quad Cities, market demand has remained strong some property types resulting in little decline in value noted.
Staying informed and adaptable is crucial in this dynamic interest rate environment. With the right strategies and a keen understanding of market dynamics, it’s possible to mitigate the profound impact that rising interest rates can have on the commercial real estate market, say experts at Kearny Bank.
For more insights, check out our blog post on What Changes the Value of Commercial Property. If you think you might need a commercial real estate appraisal, feel free to explore our services or contact us for further discussion.