by Dan Rafter
The Federal Reserve Board finally did it: Yesterday, it announced that it would raise the federal funds rate for the first time since 2008.
And though this first move is largely symbolic — the Fed raised the rate from a range of 0 percent to 0.25 percent to a range of 0.25 percent to 0.5 percent — it is making headlines, many focused on the new economic strains that a rate hike might mean for consumers.
But in a brief published shortly after the Fed’s move, Cushman & Wakefield said that commercial real estate professionals should view the rate hike as mostly good news; the Fed wouldn’t raise the federal funds rate if it didn’t believe that the economic’s recovery was on solid ground.
Cushman said, too, that the move signals that members of the Fed’s Federal Open Market Committee believe that the country’s labor market is close enough to, or already at, full employment.
Job gains were an important factor in the Fed’s decision. According to the Cushman & Wakefield report, more than 500,000 net non-farm jobs were added to the U.S. economy in October and November. More than one-quarter of these new positions were in office-using sectors. The country’s unemployment rate stood at 5 percent in November, a figure that Cushman & Wakefield economists say is consistent with full employment.
Because job gains have been strong, the Fed decided that the time was right to raise its key interest rate.
Cushman & Wakefield’s report says that commercial real estate professionals should be less concerned with the federal funds target rate or even the 10-year rate and more concerned with the overall strength of the U.S. economy. Commercial buildings perform better when companies are hiring and job growth is strong. It’s during these times that vacancy rates fall and asking rents rise.
At the same time, the uncertainty of the global economy means that the United States remains a safe haven for investors, Cushman & Wakefield reported. These investors are increasingly turning to commercial real estate in this country as a safe place for their dollars. Cushman & Wakefield’s report says that the United States is attracting “massive capital flows” from around the world.
That isn’t about to change, and will continue to have a positive impact on the performance of commercial buildings.
“In general, the Fed’s decision today is not something that the commercial real estate industry should fear,” Cushman said in its report. “To a degree, it is something that should be celebrated.”
Jeffrey Rinkov, chief executive officer of Lee & Associates, doesn’t disagree. In a statement released today, Rinkov, too, said that commercial real estate companies should not fear the Fed’s rate hike.
“Based on a strengthening and stabilizing economy, I believe this was a logical move by the Fed,” Rinkov said. “I think this signifies its belief that the economy can operate in an environment with a normal monitory policy. Relevant to real estate investment, long-term interest rates should remain at historical low levels, which will continue to incentivize investment.”