Even though fixed mortgage rates are now at 5.6%, that shouldn’t prove a real impediment to commercial real estate deals in the foreseeable future, says a top industry analyst.
Speaking at a trends and market outlook conference held just outside of Washington, Lawrence Yun noted that “commercial real estate continues to strengthen.”
The chief economist with the National Association of Realtors, Yun remarked that “the industry sector is booming, retail is turning positive, the hotel industry is recovering, apartments are doing very well, and rents are rising in all commercial sectors.”
Economists have been keeping an eye on mortgage rates as they have steadily climbed from 3.5% for a 30-year fixed rate in February to around 5.4% today.
The numbers this spring have been on an equally upward trajectory for both 14-year and 10-year fixed rates.
But Yun said that except for the office sector, commercial real estate transactions are up almost everywhere. Industrial rents are “likely to keep rising solidly in the next two years while vacancy rates will remain below 5%,” he remarked.
Yun additionally noted that even in the lagging office sector, “some variance exists depending on location.”
“We’ve seen improvement in some midsize markets as companies seek more affordable office locations away from major U.S. cities,” Yun continued.
According to the website Axios, recent office vacancy rates have been running between 9.7% and 12.2% nationally, with one-time office-dense cities like San Francisco experiencing a vacancy rate of 7.5%.
The site adds that many people who began working from home during the pandemic currently have no immediate plans to return to their offices. The good news for landlords: many tenants have 10-year leases.
By Garry Boulard
