"It will have more of a lagged effect on real estate," Ben Breslau, research analyst at Spaulding & Slye Colliers, tells GlobeSt.com. "Real estate decisions take a lot longer. It takes time to negotiate a lease, finance a building or sell a building so it won't carry over as directly or quickly as the stock market. But if this can help slow or avert an economic recession it will help sustain demand."
Financing a project will also be easier here with lower interest rates. "Banks have been cautious for well over a year," Walter Mercer, senior vice president at Spaulding & Slye, tells GlobeSt.com. "They don't want to have an excess of speculative projects or underwrite projects at the top of market rents but the rate cuts will mean there will be business as usual."
The rate cut is a confirmation that the economy is softening, adds Mercer, but it's a good thing for borrowers. Breslau agrees. "Lenders were becoming more conservative," he notes. "They didn't want too much risk exposure but now the real estate industry will be more likely to borrow money."
The real estate market had a record run here with a few deals in Downtown hitting $90 per sf to $100 per sf but, as Breslau points out, these are unsustainable rents that are probably going to level off in the coming year. "These premium deals will probably pull back slightly and we won't see a repeat of a 40% increase in rents that we saw last year," he says. "But the market here is tight enough and the fundamentals are strong enough--with a strong demand and low vacancies--to maintain rents that were achieved."
Stabilizing the economy is the goal of lowering interest rates and, as Breslau notes, this is especially important here, where high-tech companies occupy much of the commercial real estate. "We don't want NASDAQ to continue to fall," he says. But, he adds, the market here was so tight that a slight increase in availability is not a bad thing. "It'll bring us out of the frenzy," he emphasizes. "The market was gong at 180 miles per hour and now its at 100 miles per hour. It feels slower but it's still a strong market."
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