Last week, Jerome Powell, indicated the potential for a future cut to interest rates. If this were to happen, this would be the first time in over 10 years that interest rates were reduced. Many economists believe that a move such as this by the Federal Reserve would have no significant impact on the commercial real estate industry’s growth trajectory. The United States continues to remain in a strong position but does have some concerns, mainly a prolonged trade war with China, the slowdown in manufacturing, economic uncertainty abroad and inflation below the 2% Fed target rate which has led to the consideration to lower rates to offset and combat for continued simmering growth. Much of the commercial real estate industry has already accounted for a future rate cut and a cut at this point in the ball game will continue to support business and consumer sentiment.
What does an interest rate cut mean for the shopping center industry? A cut in interest rates could help boost retail developer’s confidence to move forward with a project that they might have been on the fence about at this point in the real estate cycle. Many in our industry have already baked in a rate cut for 2019 and will look to continue to monitor the capital markets very closely. The market is anticipating a cut of 25-50 basis point by the Fed based upon data, the outlook on the market and their remarks up until this point, and quite frankly a move for no reduction would come as a shocker and I am not sure that the market would react favorably to such as move. The current interest rate environment is helping to keep this train moving forward, with rates more attractive many shopping center owners and developers will want to lock in longer-term financing or even refinance at the new rate.
A rate cut will help boost commercial real estate confidence and will create a setting that there is more time to play before the next recession. Steady as she goes!