Lower Rates Are Set to Juice the Commercial-Property Market

The Federal Reserve's rate cut last week is unlikely to help many Americans soon buy a home. But for the businesses involved in buying, selling and financing offices, apartment buildings and malls, the benefits could show up much more quickly.

Commercial real estate has slumped since the Federal Reserve began increasing interest rates in 2022. In the wake of those hikes, property values declined more than 20%, sales of buildings tanked and many banks held back from lending money to property owners.

Analysts and real-estate professionals say a new interest-rate easing cycle could help prop up building values, leading to more property sales and more lending. It could also make some construction projects, such as conversions of office buildings to apartments, more likely to move forward.

"The market essentially froze for much of 2023 trying to figure out how to reprice real estate," said Hessam Nadji, chief executive of the commercial-property brokerage Marcus & Millichap. "The easing cycle will be a big relief."

After the rate cut last Wednesday, commercial real-estate firm CBRE boosted its property-sales projections for the year, citing the expectation of lower borrowing costs. Unlike most home mortgages, which don't always move in lockstep with the Fed's rate moves, a significant share of commercial real estate relies on shorter-term debt and floating-rate loans that are more sensitive to the Fed's actions.