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Over the past five years, interest rates have changed significantly, reshaping how buyers, sellers, and property owners approach commercial real estate.
In 2021, borrowing costs were historically low. The Federal Reserve's benchmark rate remained near zero, making financing relatively inexpensive and allowing investors to purchase properties with lower borrowing costs.
That changed in 2022, when the Federal Reserve began aggressively raising rates to combat inflation. By July 2023, its benchmark rate had reached 5.25%–5.50%, where it remained for more than a year. Commercial borrowing costs increased, making acquisitions more expensive and putting pressure on property owners approaching loan maturity.
The Fed began cutting rates in late 2024 and continued cutting in 2025. However, commercial mortgage rates did not fall in lockstep with the Fed's benchmark. They also depend on Treasury yields, lender spreads, property type, loan terms, and borrower qualifications. As of September 2026, the Fed's benchmark target range is 3.75%–4.00%, following a rate increase that month. Commercial financing costs remain dependent on the specific loan and lender.
What Does This Mean for Buyers?
- Purchasing power: Higher borrowing costs increase monthly debt payments, which can reduce the price a buyer can afford while maintaining the same investment return.
- Investment returns: Buyers must evaluate whether a property's income supports both its purchase price and financing costs. Some deals that made sense in a low-rate environment may no longer meet an investor's return requirements.
- Negotiating opportunities: When financing costs limit what buyers can pay, there may be opportunities to negotiate on price or terms. However, well-located properties with strong income and demand can still attract competition.
What Does This Mean for Sellers?
- Pricing expectations: Sellers who purchased or refinanced during the low-rate period may have different value expectations than today's buyers. Current financing costs and investment returns influence what buyers are willing to pay.
- Buyer demand: Higher borrowing costs can narrow the pool of qualified buyers, particularly for properties with lower income or significant expenses.
- Preparation matters: Realistic pricing, accurate financial records, and a clear understanding of a property's income potential can help sellers navigate today's market.
What About Property Owners With Loans Coming Due?
Owners with loans maturing in the next few years should begin planning well before their maturity dates.
- Refinancing costs: An owner who financed a property at a lower rate may face higher payments when refinancing, depending on current rates and loan terms.
- Loan proceeds: Even if a property maintains its value, a lender may offer a smaller loan based on its income, debt-service coverage requirements, and loan-to-value limits.
- Planning ahead: Reviewing upcoming maturities, current net operating income, outstanding balances, and available refinancing options can help owners identify potential funding gaps before they become urgent.
What Does This Mean for Property Values?
Interest rates are one factor influencing commercial property values, but they do not tell the whole story. Higher borrowing costs can put downward pressure on values because buyers need stronger income to justify a purchase price.
However, property values also depend on rental rates, occupancy, operating expenses, location, and demand. An industrial property with strong tenants, competitive rents, and limited nearby supply may perform differently from a property with significant vacancy or deferred maintenance.
The bottom line: The financing environment has changed considerably since 2021, and buyers and owners must account for borrowing costs more carefully. Understanding a property's income, current market value, and financing options is increasingly important when deciding whether to buy, sell, refinance, or hold.
Sources: Federal Reserve and CBRE commercial lending research.
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