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How will rising interest rates affect the industrial sector?

  • ​​With industrial cap rates having stayed relatively flat since recovering from the recession, should investors be wary of the anticipated interest rate hike in mid-December? Largely speaking, no. The spread between the 10-year treasury and cap rates will act as a buffer, delaying any corresponding cap rate increases. So, any growth in interest rates will not have a detrimental impact on returns or property values. More importantly, an interest rate increase can be seen as an indicator of future expected performance, and reflects the strong economic and employment conditions of today’s environment.
  • As industrial investors seek to expand their portfolios, the determinant of success will be how to maximize NOI growth. New construction tends to be a key driver of NOI growth and will be a fundamental differentiator for market performance. Rent growth and occupancy are also two important factors influencing NOI. Lucky for Denver, we’re seeing both record new deliveries of industrial product and continued rent growth, making our market able to withstand any future interest rate increases, cap rate expansion, or economic slowdown with ease.​

Source: JLL Research, U.S. Department of the Treasury​

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