Rate Cut Breathes Life Into CRE Market
The Fed’s rate cut is expected to lift commercial real estate, paving the way for more office-to-apartment conversions, new lending and additional sales.
NEW YORK -- The Fed's quarter-point cut is poised to help commercial real estate faster than residential housing, since much of the sector relies on shorter-term and floating-rate debt.
Analysts expect easier refinancing first, with commercial real-estate firm CBRE lifting sales projections as borrowing costs ease.
"The market essentially froze for much of 2023 trying to figure out how to reprice real estate," Hessam Nadji, chief executive of Marcus & Millichap, said. "The easing cycle will be a big relief."
After values fell more than 20% following 2022 interest rate increases, easing could pave the way for office building conversions into apartments, additional lending, and more property sales.
MSCI shows central business district office prices up about 2% year over year in July after a steep drop the prior year, and more buyers and sellers are finding a price.
However, risks remain as hiring cools, vacancies increase in retail and some industrial spaces and inflation remains above the Fed's target of 2%.
The 10-year Treasury yield, which is critical for underwriting, has not declined in step with the Fed's moves. On the other hand, data centers continue to be a bright spot, driven by artificial intelligence demand. "There's still a lot of headwinds for commercial real estate," Thomas LaSalvia, an economist at Moody's, warned.
Source: Wall Street Journal (09/24/25) Parker, Will
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