Uncertain signals coming from the Fed about the direction of interest rates has been damaging to the momentum of commercial real estate trading, said Macus & Millichap CEO Hessam Nadji during an appearance on Yahoo! Finance.
Private individual investors, high net worth investors and small partnerships, which make up the vast majority of CRE ownership, are very sensitive to interest rate trends. If the marketplace expects interest rates to come down, sellers tend to wait for more favorable values. If rates are going to go up, it’s the reverse, said Nadji.
“It is extremely important that the Fed be clear in its messaging,” he said. “Looking ahead, the market is beginning to come to terms with the fact that we're not going back anywhere near the lows of the previous cycle. The inflation pressure is waning, but it's not going to go away, so the Fed is going to be limited in just how aggressive they can be in lowering rates.”
Recommended For You
Values have come down since their peak in March 2022, and many investors are paying cash to secure properties they have been watching with plans to put financing in place when interest rates come down further, he said. Nadji also pointed to the importance of the 10-year Treasury yield in driving CRE lending, noting that an increase to 4.5% in recent weeks has made a big difference in market sentiment.
“The optimism is all about valuations having corrected, job growth still being steady but not so much that it really challenges the Fed, and the combination of the two, plus the fact that new supply is very limited,” said Nadji. “It's really expensive to add brand new development, brand new construction, so the supply side is cooperating.”
On the topic of potential impacts of President-elect Trump’s proposed immigration policies, Nadji outlined two aspects. The first is the large migrant population that traditionally drives workforce housing rentals. Deportation could affect gateway markets and Class B and C apartment properties. Immigration policy also could impact the construction labor force in the United States. However, he noted execution of policies may not reach the scale of execution outlined in campaign messaging.
Nadji also highlighted discussion of tariffs with US trading partners, which could affect supply and materials pricing, including lumber, for new construction.
In general, older, obsolete office product continues to struggle, but Nadji said retail and apartments are doing well. Optimism in retail is at a two-decade high as people return to stores and digital brands are creating brick-and-mortar showrooms.
“Retail is right now the darling of the industry, and apartments are doing great,” said Nadji. “People can’t afford to buy homes. Affordability is at an all-time low when it comes to buying vs. renting, and that really points to unbelievably strong renter demand on the apartment side of the market.”
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
