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CRE Experts Pessimistic About More Rate Cuts in 2025

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As 2025 approaches, optimism is high in the commercial real estate (CRE) industry, thanks to recent interest rate cuts by the Federal Reserve. However, not everyone is convinced that further cuts are likely.

At a ULI New York panel, Lisa Pendergast, Executive Director of the Commercial Real Estate Finance Council, expressed doubts about additional rate cuts, citing the Fed’s caution to avoid triggering inflation, which spiked to 9.1% after the pandemic. L.D. Salmanson, CEO of real estate software firm Cherre, echoed this sentiment, noting that any shift in Fed policy would require significant changes in leadership.

Despite recent rate cuts, borrowing remains costly, with rates ranging from 5.5% to 7%, complicating the CRE market. Pendergast pointed out that many large deals are being extended rather than refinanced. Salmanson warned that the high cap rates (around 7%) are unfavorable for development, urging a return to rates of 4-5%.

Beyond borrowing challenges, Salmanson raised concerns about economic policies under a potential second Trump term, particularly on immigration. He warned that halting immigration could lead to higher labor costs, exacerbating inflation.

While the outlook is mixed, there is hope in deregulation. Pendergast believes that a Trump administration could create a more business-friendly regulatory environment, easing the burden on CRE players.

Some are more optimistic, with panelists like Sarah Hawkins of Hines noting a resurgence in demand for CMBS deals, signaling a potential recovery in the debt markets and overall CRE activity in 2025.

 

Source:  GlobeSt.

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Unexpected 254K Jobs Growth Probably Means Lower Rate Cuts

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The September jobs report revealed a gain of over 254,000 jobs, with the unemployment rate at 4.1%. This significantly exceeded the Dow Jones economists’ forecast of 150,000 jobs and an unemployment rate of 4.2%. Given these results, it seems unlikely that the Federal Reserve will implement another 50-basis-point interest rate cut at the upcoming Federal Open Market Committee meeting in November.

Not only did the September jobs figure surpass expectations by 69.3%, but previous months’ data were also revised upward—July’s numbers increased by 55,000 and August’s by 17,000, totaling an upward adjustment of 72,000 jobs.

Wage growth also came in stronger than anticipated, with expectations set at 0.3% month-over-month and 3.8% year-over-year. The actual figures were 0.4% and 4.0%, respectively.

The Federal Reserve’s dual mandate focuses on maintaining price stability and achieving full employment. Recently, Chair Jerome Powell has noted that concerns about inflation have diminished, emphasizing the importance of a robust labor market that should not be neglected.

The unexpected surge in hiring and wage growth suggests the economy may be performing better than anticipated, raising questions about the necessity of further rate cuts.

Gina Bolvin, president of Bolvin Wealth Management Group, commented, “With rising oil prices due to heightened tensions in the Middle East and increasing average hourly earnings, the Fed may become concerned about inflation making a comeback. We could see a renewed focus on balancing both aspects of their mandate.”

Oxford Economics echoed this sentiment, stating, “The report makes another 50-basis-point rate cut unlikely. We anticipate a 25-basis-point cut in November and December.”

The markets are responding to this news, with treasury yields on both the 2-year and 10-year notes rising sharply after the unexpectedly strong payroll data and a decrease in the unemployment rate to 4.1%. Quincy Krosby, chief global strategist for LPL Financial, noted that by noon on Friday, the 10-year yield had jumped 10 basis points compared to Thursday’s close.

Looking ahead to potential rate cuts in November, the influence of job numbers could be mixed and potentially volatile. As Oxford Economics pointed out, job growth might weaken this month if the Boeing strike continues, although the resolution of port strikes could mitigate some concerns in the October report.

 

Source:  GlobeSt.

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