Detail

Strong Commercial Real Estate Conditions Persist Despite Concerns Over Interest Rates and Trade Tariffs

  • May 13, 2019

Near-term optimism about commercial real estate market conditions are tempered by concerns over expected increases in interest rates and uncertainty about the effects of international trade tariffs, according to several recent economic and industry reports.  

The Federal Reserve is expected next week to raise its target interest rate above the rate of inflation for the first time in a decade.

  • The Federal Reserve is expected next week to raise its target interest rate above the rate of inflation for the first time in a decade. The Federal Open Market Committee in March raised the fed funds rate a quarter point to 1.75 percent, signaled rates will climb to 2 percent in 2018, and projected three additional hikes for 2019. (Reuters, June 7, "Fed Clambers Back to Positive Real Rates, Now Debate is When to Stop" and Politico, March 21) 
  • Interest rates and economic uncertainty are top concerns for the commercial real estate industry, despite near-term optimism from improved economic conditions, changes in the tax code and the promise of a loosening regulatory environment. ( 2018 Akerman U.S. Real Estate Sector Report, June 5) 
  • Nareit reports that the U.S. real estate market is likely to continue to grow for the next three to five years as current policies such as tax reform benefit the industry, according to a panel at a Capital Markets Update during REITweek: 2018 Investor Conference. (Nareit, June 6) 
  • The Fed's latest "Beige Book" of current economic conditions shows positive growth and widespread concerns about trade tariffs.  The report also notes that steel and aluminum prices rose, "sometimes dramatically" due to recent duties imposed by the Trump Administration. The Beige Book is one of the first official reports showing the economic impact of the new tariffs on domestic business. (Roundtable Weekly, March 9 and  The Wall Street Journal, April 18)  
  • Commenting on these concerns, Roundtable President and CEO Jeffrey DeBoer noted the findings of The Real Estate Roundtable's Q2 2018 Economic Sentiment Index: "There are fears about political uncertainty, trade wars, and interest rate increases, which are having some impact and creating a manageable amount of uncertainty for the markets for the remainder of 2018 and looking ahead to 2019."  (Roundtable News Release, May 10) 

Economic policies that support economic growth will be a focus of discussion during next week's 2018 Roundtable Annual Meeting in Washington, DC, which will feature special guests such as House Majority Leader Kevin McCarthy (R-CA), House Ways and Means Chairman Kevin Brady (R-TX) and Senate Minority Leader Chuck Schumer (D-NY).