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All things must pass? CRE price growth expected to slow

Fed’s first interest rate hike in 9 years may have signaled end of a cycle

Janet Yellen
Janet Yellen

Could the Federal Reserve’s interest rate hike this month prove the end of an era?

The Fed’s first interest rate increase in nine years may very well signal the end of a cycle that has seen 33 straight months of price growth of at least 10 percent in the commercial real estate sector, padding returns for office towers and luxury hotels alike.

While values aren’t expected to drop steeply, they also aren’t anticipated to climb much higher next year, according to industry analysts.

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“A lot of the smart money is saying it’s a better time to sell than to buy,” Tad Philipp, a commercial property debt analyst at Moody’s Investors Service, told Bloomberg. “The warning light is on that the rate of appreciation is poised to decelerate.”

Helped by cheap debt, property values have surged over the past several years across the U.S. as global investors searched for yields and sought safe stores of wealth.

Commercial real estate prices now exceed their 2007 peak by 16 percent, according to a Moody’s and Real Capital Analytics index.

But real estate research firm Green Street Advisors noted this month that market signals “have become notably more bearish” and said it expects commercial property values to drift lower over the course of next year. [Bloomberg]Rey Mashayekhi

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