OLYMPIC VALLEY, CA—The commercial real estate market is an evolving landscape, shaped by economic factors, market trends, and investor sentiment. One crucial element that has been on the minds of industry players in recent months is the rising interest rate environment. At the recent GlobeSt. Women of Influence conference, a CRE State of the Industry Panel convened, bringing together key industry influencers from every link in the value chain. The panelists engaged in a candid discussion about the current state of the CRE market, transactional shifts, and the impact of rising interest rates on their respective sectors.
Moderated by Ashlee Cabeal, CFO of Hamilton Zanze, the panelists provided valuable insights on how the changing interest rate environment has affected their businesses and the broader industry.
Julie Baird shared her perspective on the impact of rising interest rates on the exchange market. From a deal volume standpoint, she noted a dramatic impact, witnessing a slow decline that eventually reached a plateau. However, despite the decrease in deal volume, First American Exchange Company's revenue experienced an increase. This trend suggests that the interest rate environment has been favorable for the company's operations. The ability to maintain revenue growth amidst declining deal volume indicates their resilience in navigating market fluctuations.
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Maria Barry highlighted the unique challenges and opportunities within the affordable housing sector. As affordable housing projects require a substantial capital stack, the good news is that a significant amount of equity is invested in these deals, which mitigates the impact of rising interest rates. Furthermore, grants that come in at the base rate further support the financial viability of such projects. While the construction loan area has faced challenges due to increasing interest rates, developers have diligently prepared for potential construction overruns, ensuring that projects proceed smoothly.
Camille Renshaw emphasized the importance of asset popularity and cap rates when assessing the effects of rising interest rates. For assets like car washes, which already had cap rates above the debt constant, sales have experienced a notable increase of approximately 100 basis points. In contrast, industrial properties, previously aggressively priced with cap rates in the 4s, have seen rates move up to the 6s. As a result, these assets are not being actively brought to market. The data on available net lease properties in the U.S. reflects this market behavior, highlighting the impact of interest rates on investor decisions.
Sandra Yencho provided insights into the impact of rising interest rates on property management practices. As an owner's representative, PPM assists companies in building, commissioning, and operating their spaces. Sandra noted that the pandemic has prompted a major shift in companies' approach to property management. Businesses are now focused on right-sizing their property management teams, looking to the future with strategic hiring decisions. Additionally, the rising interest rate environment has led to heightened cost-consciousness, leading companies to explore technology-driven solutions for streamlining their spaces internally. Harnessing technology offers exciting opportunities for optimizing space utilization and increasing operational efficiency.
While each panelist's perspective varied based on their specific sectors, there was a common theme of adaptability and resilience. The ability to navigate changing market conditions, strategize for the future, and embrace technological advancements emerged as key factors that will define success in the evolving landscape of commercial real estate.
Check back with GlobeSt.com for more coverage from the GlobeSt. Women of Influence conference.
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Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
