Will CRE Investors Adapt to Higher Rates?

Shifting Strategies: Adapting to “Higher-for-longer” Rates ​​

Federal Reserve Holds Steady, Eyes Future Policy Shifts ​

• The Fed left the overnight rate unchanged at its January meeting and continues quantitative tightening ​

• Chairman Powell signaled rates are currently restrictive enough, but also avoided committing to future rate cuts ​

• Market expectations lean toward no rate cut in March, with higher odds for cuts by mid-year ​

Investor Sentiment Shifts Toward Action In 2025 ​

• Many investors now expect interest rates to remain near 4.5% this year​

• As interest rates stay higher for longer, some investors will reposition capital by selling underperforming assets and targeting higher growth opportunities ​

• More investors will seek assets with upside potential, focusing on creating value through upgrades, better management or some other strategy ​

Lending Conditions Show Signs of Stabilizing ​

• Lenders report ample debt capital availability, with spreads starting to tighten ​

• Borrowing rates across the property spectrum typically fall in the 6-percent range, leading many investors to still face negative leverage ​

• Investors appear willing to accept short-term negative leverage if they see a path to long-term value creation ​

Forecast using Moody’s baseline scenario as of January 2025; estimate for January 2025 ​
Sources: Marcus & Millichap Research Services, Federal Reserve, Moody’s Analytics ​

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