Rising Interest Rates Could Spark Sales, United Properties Says

That's according to a new report from United Properties, the commercial real estate firm based here. Both buyers and sellers of commercial real estate are looking to close more transactions ahead of what may be a longer-term trend of rising interest rates.

"Some sellers may be saying to themselves that now is as good a time as any to sell their properties, especially if they believe that interest rates will continue to trend upward over the next few years," says Scott Pollock, VP-Investments Services, United Properties.

Investors are beginning to bet on an improving economy by expanding their search for investments to include even challenged office and industrial properties with substantial leasing challenges and/or deferred maintenance issues. Now that the economic recovery appears to be steadying, there is increasing optimism that demand for office and industrial space will gradually improve as well over the next year as jobs are finally added.

Leveraged buyer offers for properties declined by an average of 6% to 10%, a trend likely due to higher interest rates, according to the report. In response, buyer momentum also shifted in favor of well-capitalized institutional investors at the expense of the leveraged buyers who had held control over the previous 12-month period.

Institutional investors such as pension funds and REITs are better positioned to take advantage of investment opportunities in a higher interest rate environment, given their propensity to buy with low or no leverage. Leveraged buyers were more able to win deals in direct competition with institutional investors when long-term mortgage rates were at 40-year lows earlier this year.

Investor demand for quality properties continues to exceed supply, most obviously in the retail and industrial sectors, United says. More commercial real estate space is beginning to make its way to the market, however, as sellers take stock of the changing investment environment.