The Impact Interest Rates Have on Commercial Real Estate (CRE)

For the past few years, commercial real estate investors have been enjoying the benefits of low interest rates. But with increasing interest rates driven by the Federal Reserve, many may wonder what this will mean for the CRE industry.

How Low Interest Rates Have Impacted CRE 

One of the most immediate impacts of low interest rates has been on the financing side of things. With borrowing costs remaining low, many investors have taken advantage of this by refinancing their existing loans to pay their investors back early or taking out new loans to purchase additional properties.This has helped to fuel the current boom in commercial real estate, as investors have had more capital to put into acquisitions. It's also helped to drive up prices for properties, as demand has outpaced supply in many markets around the country.

However, with interest rates having already increased and continuing to rise, we can expect to see a slowdown in refinancing activity and perhaps even some loan defaults as borrowers find themselves unable to make their payments. This could lead to a decrease in demand for properties and a drop in prices. However, it's important to remember that interest rates are still relatively low by historical standards, and we have not yet seen a significant impact on CRE.

What This Means for Investors

For investors, the key thing to watch out for is how rising interest rates will impact your portfolio's cash flow. If you have invested in properties with loans that are about to adjust upwards, you'll need to make sure that the rents are high enough to cover the increased costs. If interest rates continue to rise, the impact on commercial real estate will become more apparent. For instance, higher interest rates make it more expensive for buyers to finance purchases, which can lead to lower demand and prices for commercial properties. In addition, higher interest rates make it more expensive for owners to refinance existing debt, which can put pressure on cash flow and lead to defaults. As a result, it's important for investors to understand how rising interest rates could impact their portfolios.  It may also be worth considering lock-in periods on the loans to hedge against rising rates in the future. And finally, keep an eye on market conditions in the surrounding areas and be prepared to adjust your strategy accordingly if you see prices start to soften.

How is Saorsa Adjusting to the Changing Conditions

Low interest rates have been a boon for commercial real estate over the past few years, but with rates on the rise, investors need to be aware of how this will impact their portfolios. By keeping an eye on cash flow and market conditions, you can make sure that your investments are well-positioned regardless of what happens with interest rates in the coming months and years.  Additionally, higher interest rates make it more expensive to finance purchases, they also make it more difficult for owners to refinance existing debt.  Saorsa mitigates these challenges by doubling down on off-market opportunities and augmenting that effort with data analytic based software technologies.