Rising Commercial Property Interest Rates: Not so Scary After All

Many investors and commercial real estate agents are worried about the rising commercial property interest rates poised to hit soon.

Bill Conerly, contributor to Forbes Magazine, projects that, “with the run up on interest rates and mortgages, and my forecast that long term interest rates will continue to rise, it’s time to wonder whether nonresidential real estate will suffer from higher interest rates” (Conerly, Forbes.com). This could prove problematic in an already struggling economy. However, the rising commercial property interest rates on real estate loans will only be an effect of a recovering economic outlook, and will cause an increase in property evaluations as well.

If the economy is struggling, commercial property interest rates are lowered because there is less capital for investors who want to buy the properties. It makes it easier for companies to buy and sell properties, which in theory keeps the economy moving. When an economy is thriving, commercial property interest rates increase because there is more “money to go around”. In other words, more investors are willing to buy properties because they have more economic liberty to do so.

According to Conerly and other top economists, commercial property interest rates, (as well as residential property interest rates) will indeed rise, but they will not cause the economy to crash and burn. In layman’s terms, Conerly explains that, “If I look at interest rates as magically set by a fairy living outside the economic systems, then I worry. However, if I recognize that interest rates are part of the economic system, I am less worried” (Conerly, Forbes.com). In other words, when commercial property interest rates rise, it’s an indicator that the economy is indeed improving. And that’s good for everybody, not just for the guy making money off high interest rates.

When commercial property interest rates go up, the need for property evaluations will inevitably increase. The changing rates of properties based on the economic market will lead to an increased need for investors and banks to see the new value on commercial properties. An entire new set of criteria will need to be met during evaluations, and comparables will also change. Not only will real estate agents be busier in a more robust economy, but there will be plenty of more evaluations needed for investors, businesses, and banks.