In the finance world, the 10 year treasury yield is often viewed as the barometer of economic health and an indicator of future interest rates. As it climbs, the effects are felt through the different sectors of the economy, including the commercial real estate market.
The 10-year treasury yield represents the interest rate at which the U.S. government borrows money for a ten-year period by selling treasury bonds. It is influenced by a myriad of economic factors, including inflation expectations, federal reserve policy, and overall market sentiment.
The recent uptick in the 10-year treasury yield has been driven by numerous factors including expectations of higher inflation, a potentially faster economic recovery, and changes in federal reserve policies.
One of the most immediate impacts on the commercial real estate markets is the increase in borrowing costs. As treasury yields rise, so do interest rates for commercial loans. With every 100 basis point increase in long-term interest rates results in a 60 basis point rise in commercial real estate cap rates. With the increased cost of borrowing, investors and builders see returns begin to drop, which inevitably pushes values down to compensate for lower returns. The added pressure of alternative investments becoming more attractive will add to the downward pressure of commercial real estate values.
Investors and developers in the commercial real estate sector should closely monitor the evolving economic landscape and adapt their strategies accordingly. As with any investments, a diversified approach, thorough due diligence, and a long-term perspective can help mitigate the effects of interest rate fluctuations.
Peter JamesPeter James is a First Vice President at Lyon Stahl Investment Real Estate and Co-Founder of The James Group, one of Southern California’s premier investment brokerage teams specializing in multifamily sales. Since beginning his career in 2007, Peter has established himself as a leading advisor in the Los Angeles apartment market, with extensive experience in the acquisition and disposition of multifamily assets throughout the Westside and surrounding submarkets.
Peter’s expertise extends beyond traditional brokerage to include complex 1031 exchanges, where he has successfully transitioned clients into single-tenant NNN properties and Delaware Statutory Trust (DST) investments across the country. His analytical approach, in-depth market knowledge, and dedication to client success have earned him a reputation for maximizing value and guiding investors toward long-term, tax-efficient real estate strategies.
As Co-Founder of The James Group, Peter has built a collaborative team known for its integrity, market insight, and commitment to excellence. His strong relationships with lenders, attorneys, and accommodators ensure that each transaction is executed seamlessly and strategically aligned with his clients’ financial goals.
Outside of work, Peter and his wife Jessica enjoy spending time outdoors with their daughters Dylan and Daphne, whether surfing, snowboarding, or exploring the California coast and mountains. He is a graduate of the University of California, Riverside.
