Fed Cuts Rates: What It Means for CRE Investors

On September 18, the Federal Reserve made a significant move by cutting interest rates by 0.5%, signaling potential further cuts in 2025 and 2026. This comes after an aggressive streak of rate hikes—11 increases between early 2022 and mid-2023—intended to combat inflation.

The Impact on CRE Investors This rate cut offers relief to commercial real estate (CRE) investors, but according to John Chang, Senior VP of Research Services at Marcus & Millichap, there are two key considerations:

1. Positive Side: Lower rates could alleviate potential CRE distress by easing the refinancing process for properties with looming debt. Reduced interest rates will likely inject momentum into the CRE transaction market, making debt capital cheaper and potentially reducing investor hesitancy.

2. Cautionary Side: Despite the rate cuts, the economy may not be as stable as it seems. Rising unemployment and slowing job growth could signal broader economic weakness. While Fed Chairman Jerome Powell stressed the goal of supporting growth and avoiding a recession, economic fragility remains a concern.

3. Multifamily Sector Outlook For multifamily investors, the cuts could encourage new construction starts and make refinancing distressed assets more feasible. However, these changes won’t solve issues like the ongoing affordability crisis or inflation-driven operational costs. While rate cuts may offer some relief, they aren’t a fix-all for every challenge in the sector.

What’s Next for the CRE Market? Will rate cuts breathe life back into the stagnating CRE market? Perhaps—but for now, their impact may be more psychological than practical. Investors may feel more confident, sellers may reevaluate property valuations, and buyers may be more motivated. Eventually, these rate cuts could help restore broader economic stability by breaking the current standstill.

Looking Ahead: With more rate cuts anticipated through the end of the year and into 2025, there’s potential for a 15–20% rise in transaction activity, according to CBRE forecasts. The months following the upcoming elections will be critical to watch.

Key Takeaways:

1. Relief for Investors: Rate cuts ease the cost of borrowing and may relieve refinancing pressures.

2. Lingering Risks: Economic uncertainty persists, with potential signs of weakness in unemployment and job growth.

3. Sector-Specific Effects: Multifamily could benefit, but affordability challenges remain. Office space still faces headwinds despite lower rates.

4. The Big Picture: Further rate cuts by year-end could set the stage for increased deal-making in 2025, offering a chance for the CRE market to regain momentum.