The recent supply chain issues are pushing inflation up, and the Fed has been quick to act by raising interest rates to slow it down. Rising interest rates are one of the main issues facing the property industry, and no property sector is watching more closely than the office.
Offices are already undergoing a lot of strain due to their lessened usage; a growing number of companies are embracing working from home, and now they will have to navigate rising interest rates on their less-used offices.
Some not-so obvious effects of rising interest rates on the office include:
1. Capital will be more expensive
– Commercial mortgages are more sensitive to interest rate hikes because they have shorter terms than residential properties.
2. The long term isn’t set in stone
– For commercial properties about to become profitable or with large loans due soon, higher interest rates will push them under. If the outlook for offices gets worse, there might be less patient capital looking to buy and hold office properties.
3. They’ll need to power through
– Office occupancies around the country are increasing as more companies ask employees to come back into the office; the fate of the office market depends on whether organizations see value in shared workspaces. Rising interest rates are bad for all real estate, but if offices can stay afloat in the short term, eventually they will once again be considered a low-risk, cashflow-generating asset.
