October Industry Rates | Capital Markets Rate Sheet

Were rates hiked too soon?

The Fed hoisted the federal funds rate by three percentage points in 2022 after its third straight hike by three-quarters of a point in September. It expects the rate to close out in 2022 at about 4.4%. This inflation-fighting move has some concerned that the Fed raised rates too quickly as the aggressive rate hikes have hammered the stock market and other investments. The effects of the Fed rate hikes are felt quickly in commercial real estate financing or any highly leveraged industry. These higher costs of capital are forcing investors to adjust to a new landscape, reevaluating market positions and adjusting expectations.

Although the capital markets have been choppy, the positives outweigh the negatives. According to Commercial Observer, commercial real estate is well positioned for strong momentum with increasing replacement costs, growing rents, a very strong job market, strong balance sheets, limited overleverage, and high liquidity. However, those sitting on debt with loan maturities are entering a difficult time.

Finding opportunities in the market

With inflation (hopefully) gone, the war in Ukraine hopefully ending, and employees back in the office, there will be opportunities. From a sector standpoint, fundamentals are the best in industrial, multifamily, and niches such as data centers, single-family buildings to rent, and student housing.