CRE Investment Still Strong, Says M&M

By Keith Loria, Contributing Editor: CRE investments should continue to grow into 2016, predicts Marcus & Millichap.
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Bill Hughes, Senior Vice President, Marcus & Millichap Capital Corp.

Positive economic trends moving the Federal Reserve toward action are the same trends lifting commercial real estate performance, according to a special real estate capital markets report released by Marcus & Millichap.

The report shows that while commercial real estate investments continue to benefit from a range of positive economic trends, the prospect of an increase in the federal funds rate has raised concerns about asset values and sales activity.

“While there’s global concern about various economies, the U.S. economy continues to do fairly well, although there is ongoing concern about how some of those large global economies may impact the domestic economy,” Marcus & Millichap Capital Corp. Senior Vice President Bill Hughes told Commercial Property Executive. “The Fed is considering that in having not pushed their short-term rates up, and I think they have exercised a lot of patience because it is not in their best interest to overreact to markets but to be conservative and wait for solid evidence that we are on good fitting before they start to raise those short-term lending rates.”

According to figures, the 10-year U.S. Treasury ended the third quarter in the low-2 percent range, held down by rising demand for low-risk fixed-income assets.

“As the markets prepare to digest a rate increase by the Federal Reserve, it is important to stress that long-term rates such as the 10-year Treasury are not directly tied to short-term rates, or the short end of the yield curve,” Hughes said.

The report also points to limited new construction in most commercial property sectors and an overall balance between new building and renter demand in the apartment sector.

The positive trends Hughes points to include continued occupancy growth and rent growth in many markets, combined with the fact that there isn’t over-development.

It’s expected that readily available capital and a wide range of active lenders will keep interest rates competitive in the coming months, and the timing of the Fed action isn’t expected to have a negative effect on commercial real estate lending.

“We think moving into 2016, things are very solid and we won’t see much change from this year,” Hughes said. “There is lots of capital looking at CRE for investment. Lenders will be highly active, with a lot of different lenders offering different products, so we are very bullish moving forward.”