Interest Rates Outlook Remains Steady for CRE Buyers

Expectations for Interest Rates

The Federal Reserve kept interest rates steady, sparking speculation about sharp drops once Kevin Warsh becomes Fed chair, reports the Commercial Observer. In commercial real estate (CRE), many wonder if a new Fed approach could bring back ultra-low rates and boost property values.

However, CRE depends more on the 10-Year US Treasury than short-term Fed actions. Inflation, fiscal policy, global capital flows, and risk premiums shape long-term Treasury yields. These factors go beyond Fed leadership and hold greater influence over market trends.

Why Big Drops Are Unlikely

Historically, the 10-Year Treasury yield averages about 5.4%—much higher than current levels. Near-zero rates after the global financial crisis were an anomaly, not the norm. Extraordinary monetary policy, not structural shifts, created those conditions.

Without another severe financial crisis, interest rates likely won’t collapse again. Persistent budget deficits, high US debt, and global economic changes make a return to ultra-low rates unlikely. These structural forces support higher long-term borrowing costs.

Implications for CRE Buyers and Sellers

CRE buyers who wait for much lower rates risk missing valuable opportunities, especially in cities like New York. Prices continue to adjust, presenting favorable conditions for those ready to act.

Sellers also shouldn’t rely on lower rates to restore peak valuations. Income, investor sentiment, and capital structure matter as much as rates when pricing assets. Value recovery depends on more than interest costs. A continued mismatch between housing supply and demand further complicates market dynamics, affecting investor confidence across multiple sectors.

Healthy market activity needs alignment between buyers and sellers—not perfect rate conditions. As more participants accept today’s environment, CRE deal volume is likely to rebound.