According to reports, in December 2016, the Federal Open Market Committee voted to raise interest rates 25 basis points and plans to raise rates three more times during 2017. While the market had been expecting the increase, many commercial real estate investors have concerns that the change may bring about a negative impact on the commercial real estate market. However, these fears may be unfounded.
While interest rates should not be ignored, the real concern people should have is over the condition of the economy because interest rates are artificial. In fact, whenever interest rates are normalized, it is typically because the Fed believes the US economic recovery is strong enough to handle the hike without the false support of low rates. This factor should encourage property owners and commercial real estate investors as a thriving economy is what investors rely on despite rising rates. A strong economy spurs jobs, produces higher wages and brings in more cash to investors via higher sales prices and rents. It is also interesting to note that, prior to the rate hike in December, the last time the Fed raised the rate was back in 2006.