Although commercial real estate investors had major concerns over the rise in interest rates following the presidential election in November, rates have moderated and are having a minimal impact on commercial real estate transactions, according to a CBRE study. The study found the rate hike so far has had little or no impact on two-thirds of deals nationwide, with an average 3% downward price adjustment (from 0.4% to 11%) on the other one-third of transactions. However, the Fed is expected to raise rates three more times this year, as well as two or three times in 2018 and three times in 2019. Interest rates impact cap rates and ultimately property valuations, and the biggest risk to the commercial real estate sector is that under proposed GOP tax reform and a subsequent boom in investments, the economy could get so overheated that the Fed might raise rates higher than expected, which could throw the nation into another recession.

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BISNOW, CBRE Research Head Discusses Future of CRE under GOP Leadership