Impact of Falling Interest Rates on Commercial Real Estate

Lower interest rates from the Federal Reserve significantly benefit the commercial real estate sector, making the current macroeconomic environment more favorable than in previous months. As rates have declined from a peak of 5% to around 3.75%, the improved funding costs facilitate healthier origination volumes in securitization markets, more than doubling from the previous year. However, while a portion of the commercial real estate loans are floating-rate and will directly benefit from these cuts, most loans are fixed-rate, meaning much of the relief has already been priced in. Thus, while the current landscape offers some reprieve, broader challenges remain, particularly for office properties, as structural issues continue to affect their performance despite favorable rates.