Real Estate: Fundamentals Still Show Solid Growth
Amid rising interest rates and slowing construction starts, underlying commercial real estate performance is healthy.
U.S. Real Estate Outlook
By Kevin Brown
The U.S. real estate market increased slightly in the third quarter, performing relatively in line with the broader U.S. market. The 10-year U.S. Treasury yield increased rapidly at the start of the year but has stayed near 2.9% since mid-February, bringing relative stability to real estate stocks. Given the circumstances, many investors wonder whether we are near the peak of the commercial real estate cycle--higher interest rates could pressure growth rates, cap rates, return expectations, and ultimately asset prices. Also, to the extent that low interest rates have steered investors searching for higher yield and capital preservation toward REITs, the same funds could flow out of REITs if interest rates rise, further pressuring commercial real estate valuations.
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