August 19, 2019
By David Cohen
Amid fears of a global-growth slowdown rippling through financial markets, the federal reserve’s recent rate cut as well as the potential for more cuts ahead may seem to spell doom and gloom for the CRE market.
Connect Media asked Walter Byrd, Executive Managing Director in Transwestern’s South Florida office, to share insights about South Florida’s CRE market, and why he thinks the fed’s recent cuts are good for the region’s CRE market. Check out his responses in our latest CRE Q&A:
Q: How does the CRE industry in South Florida stand to benefit from the fed’s recent quarter-point cut to interest rates?
A: The Fed’s rate cut appeared to be a preemptive move based on concerns that the economy was slowing, so a cut should help stimulate growth. The concerns about a slowing economy has now spread to the stock market and with the recent selloff, capital has sought the safety of the bond market which has pushed down the yield on the 10-year Treasury. Most interest rates in the commercial real estate sector are benchmarked against the 10-year Treasury, therefore the concerns about earnings and the overall stock market have actually had a more direct and immediate impact on interest rates.
Q: There has been a tremendous amount of growth this cycle in the industrial market. What effect do you think this rate cut will have on the industrial market in South Florida?
A: Again, I think the Fed’s rate cut has less impact than the lower yields on 10-Year Treasuries, but as we get later in the cycle, as cost for new construction increase and rental rate increases start to moderate a little, the lower interest rates help buyers stretch a little more to acquire assets and still achieve their return targets.
Q: What are your thoughts on the interest rate moving forward? Do you think there will be more rate cuts ahead?
A: While the Fed’s interest rate cuts may not have as direct an impact on commercial real estate debt as one would expect, the impact on credit card interest rates, car loans, and other short-term debt vehicles generally stimulates consumption, which benefits users with more sales and is good for the occupancy of real estate.
For comments, questions or concerns, please contact David Cohen