Climbing the interest ladder: Unveiling the surge in U.S. commercial property debt yields

graph of Capital Markets U.S. commercial property debt yields from 2007 to 2024 by sector
  • As central banks across the world are increasing rates to combat inflation, borrowing costs for commercial property loans have correspondingly increased. Amid macroeconomic uncertainty, lending institutions have demanded higher yields to offset the increased risk.
  • In response, investment strategies have shifted toward property types with solid underlying fundamentals and reliable income streams or less debt-dependent assets such as single tenant net lease retail.
  • This presents generational opportunity for savvy investors—who can can generally be more nimble than institutional investors—to acquire distressed assets for large discounts or enter markets where others are pulling back. This can be observed in debt yields on multifamily assets, which are roughly 350 bps tighter than other commercial properties, clearly portraying the risk premium associated with these assets.

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