The Federal Reserve today announce a 50 basis-point increase to interest rates — the largest increase the central bank has made since May 2000. The committee approved the rate increase unanimously.
With this move, the Fed’s target interest rate range is now 0.75% to 1.00%, though some members of the governing body recommend raising the range closer to 2.5% by the end of this year.
Federal Reserve Chair Jerome Powell noted during his remarks that the central bank was not actively considering any larger increases in the 75 basis-point range, something many investors thought possible. However, further 50 basis-point increases were not immediately ruled out — and could come as soon as the next Federal Open Market Committee in six weeks.
The CRE Impact
This interest rate hike will lead to higher lending costs in the commercial real estate realm: Many lenders had already priced the higher interest rates in during the days leading up to the announcement. And while the higher rates will likely ease some downward pressure on cap rates, other factors — like strong demand and employment growth — will likely keep capitalization rates low overall, especially for industrial real estate.
Lending costs are anticipated to remain slightly lower for the multifamily sector, comparatively speaking, though they will also see a bump up. Cap rates for multifamily real estate will also likely remain heading downward, though some markets with projected rent growth deceleration may see an increase. These markets include gateway cities like San Francisco and New York but also may extend to high-cost primary markets like Seattle.