How Are Rising Interest Rates Affecting Ohio Commercial Real Estate Investment?
Interest rate hikes are impacting the commercial real estate industry in Ohio. The latest data shows that despite rising inflation, the prices for commercial property are declining. This is not due to properties lacking value. Instead, there is no longer high demand from real estate investors because of the high interest rates and higher costs in the long term.
However, despite the growing pressure on many real estate investors, this is not affecting those in the industrial market who occupy and utilize commercial real estate. Despite a lack of a low interest rate environment, there is still high demand in the industrial market.
In Central Ohio, the vacancy rate is currently approximately 3%. This means that while real estate investments have become riskier, those exploring industrial real estate opportunities aren’t being deterred.
How Are Interest Rates Impacting Industrial Commercial Real Estate Investors?
Despite high interest rates and significant downward pressure on investors, there is still plenty of demand for industrial product in Ohio. However, many businesses are struggling to find good locations and the right property types that match the required modern standards. As well as this, there’s been an impact on owners too. Owners in the local market may be more inclined to hold onto a property they would have previously sold because property values are lower.
Those exploring leases are also being impacted during this difficult economy. Higher interest rates will likely mean a surge in rental costs. When combined with a decline in demand, supply chain issues, or problems with financing, this could mean that rental options are no longer affordable.
Are There Other Factors Impacting The Commercial Real Estate Market?
There are a lot of other factors beyond rising interest rates that are impacting commercial real estate investing in Ohio.
First, the American economy as a whole took a hit during the pandemic. Many businesses have not seen interest return to pre-pandemic levels. As well as this, companies are also facing unfavorable financial market conditions. This includes mortgage rates doubling for investment property and the growing threat of a looming recession. These factors are creating more upward pressure on commercial real estate prices.
Ohio Commercial Real Estate Loan Trends In 2022
Another factor to look at here beyond cap rates and the higher rates of interest is changes to the Ohio lenders market. Changes to business lending behavior are adding to the cost of these real estate investments and making it more difficult to access loans with favorable terms.
Is Commercial Real Estate Still A Good Investment?
Yes. Commercial real estate continues to be a good investment despite the current deterrents of high inflation, increased construction costs that continue to be impacted by the supply chain, plus much higher interest rates.
This situation is likely to improve in the future with better opportunities for investors. While interest rates are currently on the rise, in part due to rises in the federal funds rate, the interest rate is expected to stabilize next year.
That said, interest in, and inquiries for, commercial properties located outside the local area have increased. This is likely due to more favorable terms for lease space as well as more options for potential buyers. And, if this is a sign of what’s to come, we can look forward to an exciting time with higher levels of interest in commercial investment properties.
That’s why it will be important for investors and sellers of commercial properties to pay close attention to the markets and the changing economic trends in the weeks and months ahead.
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