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Commercial real estate executives cite rising interest rates as their lead concern for the industry this year, according to law firm Seyfarth Shaw’s annual Real Estate Market Sentiment Survey, which tallied responses from 157 executives, including developers, investors and asset managers.
The survey respondents were overwhelmingly hawkish: 98 percent said they expect interest rate increases from the Federal Reserve in 2018, with one-third of real estate executives projecting three increases over the next 12 months. As the real estate industry embraces new tax cuts, low unemployment and stock market success, respondents said they expect today’s economic factors to force the hand of new Federal Reserve Board Chairman Jerome Powell and, consequently, to shape his 2018 investment strategies.
Source: Seyfarth Shaw
Respondents say they believe that multiple interest rate increases will start to have a materially adverse impact on the commercial real estate market this year. With large questions looming on the federal deficit and budget, nearly two-thirds of respondents said they think the industry can stomach an increase of anywhere from 51 to 150 basis points — 36 percent citing 51 to 100 basis points as the limit, and 27 percent staking a position for 101 to 150 basis points.
With more third-party investment expected this year than last year, private equity and institutional investors are the top primary sources of equity for respondents in 2018. Private equity, jumping from No. 3 to No. 1 this year, is viewed as the preferred source, thanks to new tax benefits and the current positive economic conditions.
By Brannon Boswell
Executive Editor, Commerce + Communities Today