Commercial real estate professionals are split on whether rising interest rates are cause for panic, mild concern or optimism. Some investors fear that rising interest rates will lead to higher capitalization rates and result in declining property values and lower overall returns. Others take a more historical view. They recognize that interest rates have been at their lowest levels, and any increase in the current economy will most likely have limited impact. In fact, during prior periods of rising interest rates, commercial real estate has performed well, yielding more favorable returns than other asset classes, and even serving as a hedge against rising inflation.
According to data from the National Council of Real Estate Investment Fiduciaries (NCREIF), commercial real estate historically generated average annual returns of approximately 9.4 percent during periods of rising interest rates. That scenario would serve commercial real estate investors well this year.
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