Borrowing costs are not coming down anytime soon—and for commercial real estate investors staring at looming maturities, that reality is becoming harder to ignore.
Marcus & Millichap is warning that financing conditions are "unlikely to ease meaningfully in the near term," reinforcing a higher-for-longer rate environment that could complicate refinancing decisions well into 2026 and 2027. The firm's outlook suggests that, rather than preparing for relief, investors may need to brace for the possibility that borrowing costs remain elevated—or even rise further.
That shift in expectations is already reshaping how market participants think about risk. Loans maturing over the next two years could face refinancing at rates that exceed original underwriting assumptions, particularly if inflation proves stubborn and monetary policy tightens further. Marcus & Millichap notes that the probability of a rate hike has increased, underscoring the uncertainty facing capital markets.
The implications are immediate for deal-making. With financing costs unlikely to improve, investors may need to rethink timing around acquisitions, dispositions and refinancings. Rate-lock strategies, exit assumptions and underwriting models are all under pressure in an environment where clarity on future borrowing costs is limited.
Signs of strain are already emerging in credit performance. According to Trepp, overall CMBS delinquencies reached 7.1 percent as of April, with office leading at 16.7 percent and retail at 7.6 percent. Elevated borrowing costs are a key factor, particularly for assets struggling with income growth or facing rollover risk.
Inflation remains a central driver behind this outlook. The Federal Reserve's June Summary of Economic Projections put inflation expectations at 3.6 percent, with core inflation at 3.3 percent—both well above the central bank's 2 percent target. While geopolitical developments, such as potential stabilization in energy markets, could ease some pressure, policymakers broadly see risks as tilted to the upside.
Marcus & Millichap emphasizes that these inflation dynamics are feeding directly into rate expectations. Persistent price pressures limit the Fed's ability to cut rates and increase the likelihood that policy remains restrictive longer than previously anticipated.
Only after factoring in these pressures does the broader policy backdrop come into focus. The Federal Open Market Committee's decision to hold rates steady reflects ongoing uncertainty, but the approach under Chair Kevin Warsh introduces an additional layer of complexity. His push for reduced forward guidance and a reassessment of core policy frameworks signals a central bank in transition, with fewer clear signals for markets.
That lack of visibility could itself keep long-term rates elevated. Marcus & Millichap points out that reduced transparency around policy direction may complicate capital planning, while the Fed's balance sheet review could further tighten liquidity. For CRE investors, the combination of persistent inflation, elevated borrowing costs and limited guidance creates a challenging environment where waiting for clarity may not be an option.
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