What the Largest Rate Hike in 20 Years Means for CRE Investors

Fed Taking Aggressive Action to Combat Inflation

• CPI inflation reached highest level in 40 years
• Fed hiked the overnight rate by 50 bps and announced plans to shrink its balance sheet at last week’s meeting
• Goal of making money more expensive to borrow and slow spending, curtailing demand-side price pressure

Are These Decisions Too Little, Too Late?

• Many of the underlying inflation drivers, like supply chain disruptions and shortages, have not been addressed
• Elevated household cash savings could limit initial impact of Fed actions
• More rate hikes expected if inflation does not slow

CRE Investors Should Position Themselves Advantageously

• Inflation likely to persist, property types like Apartments, Self-Storage, and Hotels can help mitigate impact
• Plan for rising interest rates – Lock in longer-term debt as soon as possible
• Strong household balance sheets remain a tailwind for spending, supports outlook for various property types

*Through May 04
Sources: Marcus & Millichap Research Services, Federal Reserve

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