We all watched eagerly, and as expected the Bank of Canada raised rates by another 0.25%. Rates are now at the same level of 2007, so it’s not your imagination – it’s been an abrupt change. As you see from the chart below, the speed of change is also unprecedented: rates are +4.25% from the same time last year.
It’s clear we’re in a new environment for borrowing costs. For many operators or long-term owners, this isn’t necessarily a huge obstacle. Not everyone is renewing a loan or securing new debt right now – they may have done so last year and locked in low rates, or they’ve paid off debt already.
Let’s also keep in mind that leasing is not necessarily tied to the rate environment. If tenants need space, they need space, especially for tight assets like industrial. There’s even an argument that high rates are beneficial for some asset classes. If nobody can afford a mortgage... then that may be bullish for multi-family rentals.
The Bank of Canada raised interest rates for 8th time since the start of 2022, putting rates at 4.5%. Current overnight rates are at a 16 year high, after reaching all-time lows just one year ago.
I look forward to hearing from you as always. Is there a silver lining in this policy for commercial real estate, or will 2023 be a down year?