Federal Reserve May Drive Investors to Commercial Real Estate

Posted on 5 October, 2012 by Jodee Redmond

The U.S. Federal Reserve has decided to buy more mortgage-backed securities from Freddie Mac and Fannie Mae and this decision could have an impact on investors, as well as the housing market. The plan involves buying $40 billion in mortgage-backed securities per month to drive a recovery in the real estate market. The purchases will continue until economic conditions in the U.S. improve.

 

This quantitative easing could contribute to better yields for riskier assets over the short term of the next few months. When the Fed bought long-term U.S. Treasury bonds in 2010, prices of equities, commercial backed securities and other high-yield bonds increased by 12-25 per cent.

Analysts at Fitch ratings are predicting that the Fed’s move could be a positive development for real estate investment trusts (REITs). If the new plan results in a decline in long-term Treasury rates or maintains them at their current levels, they anticipate a drop in overall borrowing costs for REITs will follow. Lower rates could also encourage investors to allocate more of their respective portfolios to REITs.

Commercial real estate prices have changed since the last time this strategy was used, and it may be more challenging for investors to get the same kind of yields they were seeing in 2010. If the investment in mortgage-backed securities resulted in investors being able to expand their businesses, the benefits would impact the commercial real estate market in a more direct manner.

Demand for office space would increase, leading to more hiring and higher consumption levels. Retail and warehouse spaces would benefit from higher demand, which would be good news for investors. Long-term, stable tenants mean regular income for investors and this prospect may be enough to encourage new players to enter the U.S. market.

 




Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Recent Posts

Interest Rates Impact on Commercial Property

Commercial Property Investment Outlook for 2023

The best places to stay on the Riviera

The latest property data has identified Newquay as the fastest property seller’s market in the UK

Investing in your garden can increase your property’s value

French Riviera temping high-end homebuyers

How can the ownership rights of my commercial property impact a business sale?

Should I incorporate virtual property viewings permanently?

Investment expected to increase across Asia-Pacific in 2021

UK property industry slows as the conclusion of tax break looms

BNP Paribas cautioned investors on Friday as debt-trading bonanza that increased its earnings this past year

Over 300,000 property purchases fell through in 2020 – we show the most frequent motives and the best way to get your house sale back on track

House Prices in the Capital Surpass £500,000

Optimism from the Bank of England’s chief economist

The most expensive commercial properties.

Businesses operating from shared premises will miss out on grants