Federal Reserve: Don’t Expect a Rate Hike

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“I’m thinking of trimming my holdings in commercial real estate,” says my buddy, Richard. “With the Fed moving to increase rates this year, it’s going to hurt my holdings.” I’ve heard the same statement more than a dozen times.

And I’m still shaking my head.

I told Richard the same thing before the Fed stayed put in September, too.

As I noted here, “Despite fears of a Fed rate hike – which I don’t believe will happen this week – U.S. commercial real estate remains a hot destination for foreign capital.”

There’s just far too much global demand for U.S. commercial real estate for me to voice concern. Look at Manhattan, for example. Canada jut bought a record $3.85 billion in property this year, doubling the $1.97 billion spent in 2014. It also passes the $2 billion peak of 2007.

Even the Urban Land Institute (ULI) Center for Capital Markets and Real Estate has noted the real estate market will expand at healthy levels from 2015-2017. Commercial real estate prices are forecast to increase 10% this year and 6% in 2016. Commercial property transaction volumes are also expected to pick up, leveling off at $500 billion by 2017.

Yet, there are those that fear prices are topping out…

We must also consider there’s little reason to believe a Fed rate hike will happen this year. The Fed has painted itself into a corner it can’t – and won’t soon – find its way out of. Given the poor jobs report of last week, there’s no wiggle room.

The economy added just 142,000 jobs last month. Expectations were for 200,000. August was revised lower from 173,000 to 136,000. And that may leave the Fed no choice but to remain accommodative near-term.

The labor participation numbers dipped to 38-year lows of 62.4%, as well.

When it comes to commercial real estate, there’s little to fear. There’s no bubble. And we can find comfort knowing CRE consistently outperforms other investments.