Interest Rate Hikes do not Always Spur Rising Cap Rates

Posted on December 05, 2018

The Federal Reserve marked the end of the third-quarter of 2018 by raising interest rates for the third time this year. This 25-basis-point increase brings the federal funds rate to a range of 2 to 2.25 percent, which is the highest level since the start of the recession in 2008. While rising interest rates typically yield upward pressure on capitalization rates, the two do not always follow in lockstep, especially in the short-term.

Rising rates signal a healthy economic environment, in which owners of commercial real estate (CRE) will have an easier time filling vacancies and raising rents, which will affect their ability to grow operating income. Moreover, as 10-year US Treasuries have more than doubled over the past two years, cap rates have hardly moved. In the current environment, there remains a significant number of attractive commercial real estate investment opportunities, especially in secondary and tertiary markets.

With offices in Miami, Orlando, New York City and Geneva, the team at Orion works with investors, developers, property owners and brokers through all phases of real estate transactions, from strategic planning and analysis to financing, negotiation, property management and disposition. For more information, call (305) 278-8400 or email info@orionmiami.com.