Fed’s Rate Cut Pause Portends Uncertainty in Commercial Real Estate
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The Federal Reserve’s decision to refrain from issuing an interest rate cut on Wednesday could have a dampening effect on CRE activity, with industry professionals already finding it difficult to secure financing for high-dollar deals.
Fed Chair Jerome Powell said the central bank was going to maintain its current target range of 4.25-4.5%, citing projections of higher inflation due to President Donald Trump’s tariff policy.
“Some near-term measures of inflation expectations have recently moved up. We see this in both market and survey-based measures. And survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor,” Powell said at a press conference following a two-day meeting of the Federal Open Market Committee.
He noted that while the U.S. economy has been heading toward price stability, “further progress may be delayed” as a result of Trump’s tariffs.
Scott Morse, managing partner at Citadel Partners, shared his read of the pause on interest rate cuts with CandysDirt.com, noting that things might be “bumpy and unpredictable” this year.
“Not necessarily bad or good; just bumpy. We will see bright spots, smart purchases made, good leases completed, but we will see more office properties go back to the lenders and higher unemployment, which will clearly impact short- and long-term decisions,” Morse said.
(Apricus Realty Capital)
Matt Haley, managing principal at Apricus Realty Capital, was less sanguine in his estimation.
“The Federal Reserve is in a tough spot — lowered growth expectations, increased inflation expectations, and expected higher unemployment. Could be moving toward the feared stagflation,” he told CandysDirt.com.
The Fear and Greed Index
Many CRE investors are already reporting difficulty in getting financing for deals.
The latest Fear and Greed Index survey by John Burns Research and Consulting and CRE Daily found that some 42% of all CRE investors polled in Q1 2025 cited “interest rates/cost of capital” as the biggest obstacle facing their industry.
Some 30% of investors reported that accessing capital was more difficult this quarter than Q4 2024.
Investor confidence also softened quarter over quarter, and overall market conditions declined or remained flat in every sector save for office, according to the survey.
Alex Thomas, senior research analyst at John Burns Research and Consulting, told CandysDirt.com that “uncertainty” is making it harder for investors to make long-term business decisions.
(John Burns Research and Consulting)
“If investors don’t feel that they have more clarity on the trajectory of policy between now and next quarter, I think you could very well see another dip in investor sentiment,” he said.
Thomas also noted that Texas will probably track with national trends, but CRE activity in the state may face additional downside risk.
“As a border state, Texas could be more impacted by shifts in trade policy and immigration,” he said.
One of the investors polled by John Burns Research and Consulting noted as much, remarking that mass deportations could have an impact on occupancy in states like Texas and Florida.
“The same goes for development in those markets and resource/construction crew strain placed on the market by the rebuild of California after the wildfires,” the investor said.
Undocumented immigrants make up an estimated 10-19% of the construction industry’s workforce.
