How Interest Rates Affect Commercial Real Estate

Interest rates have been stable over the past several years, but it’s becoming evident that they’re now on the rise. Commercial real estate investors keep a close watch on interest rates for obvious reasons, but how much does the interest rate really affect them? For one, borrowing money is much more expensive with higher interest rates. But there are other factors that affect financing for commercial real estate when it comes to fluctuating interest rates. Here are a few.

Property Prices Decrease, Cap Rates Increase

There are many variables to consider when determining pricing and rates, but in general, property prices decrease and cap rates increase when interest rates rise. With higher interest rates, you may be able to lock in a price for a commercial property at a lower price, but you’ll most likely be paying more in the long term.

Increased Interest Rates Could Signify a Strengthened Economy

A higher interest rate is a common sign of a strengthened economy. With a strengthened economy comes a stronger market for real estate. While this isn’t a guaranteed connection, many business leaders are optimistic about the United States economy being on the rise in the near future. This means more people will have the funds to invest in commercial real estate, and commercial property lending companies will be able to provide more financing options for investors. And as interest rates continue to rise, commercial real estate investors will jump on the opportunity to lock in a low rate.

Refinancing Considerations for Investors

It’s always smart for commercial real estate investors to at least look at refinancing their property. With interest rates expected to climb in the very near future, many investors are thinking about refinancing now rather than waiting to see what the market does. Refinancing with a new locked interest rate can protect an investor from fluctuations and provide a more solid plan when it comes to planning out expenses and profits.

Commercial Mortgage Connection provides multiple options when it comes to financing for commercial real estate. We understand the impact interest rates can have on your investment, so we tailor your financing to meet your specific needs. Feel free to contact us at any time to learn more.