REAL ESTATE NEWS

It's the beginning of a new year and the first time that the Federal Reserve will determine where the federal funds rate will be. After multiple rate cuts to end 2025, this time it's largely expected that the current 3.5 to 3.75 percent range will stay the same after today's meeting. In fact, there's almost no chance the central bank cuts rates again this month, according to CME FedWatch pricing.

The only thing investors will want to watch for is it could signal the timing of future cuts, likely mid-2026 at the earliest, according to Yardi Matrix forecasts.

Most notably, California CRE will be on notice. The Golden State is highly interest-rate-sensitive due to high asset prices, leveraged ownership and large refinancing pipelines. A "rate hold" has specific implications, Doug Ressler, business manager at Yardi Matrix, told GlobeSt.com.

Its 2026, CRE forecasts indicate that interest rates on commercial loans will stabilize between 5.5% and 6.5%.

"The ultra-low rates of the pandemic era are 'gone,' so refinancing at higher coupons will continue to pressure owners," Ressler said.

"A $1.8 trillion wall of maturities is hitting CRE nationally, intensifying pressure on high-debt coastal markets like California."

Lenders Remain Cautious, Leverage Constrained

Garret Weyand, partner at Cedar Street Partners, told GlobeSt.com that for California assets, a flat-rate decision keeps the market frozen where it's been ? lenders remain cautious, leverage stays constrained and pricing gaps don't close fast.

"We're still seeing buyers and sellers talk past each other because the cost of capital in California hasn't reset enough to support deal volume," Weyand said.

"Even with no Fed move, debt costs don't really come down until spreads tighten and more lenders step back into the market with conviction. Stability is a positive, but it isn't the spark that suddenly unlocks liquidity here."

Office, retail and transitional assets in Los Angeles, San Francisco, and Southern California suburbs remain vulnerable to valuation resets and distress sales if rates remain sticky, according to Ressler.

Meanwhile, Yardi Matrix says multifamily demand in California in 2026 is solid, with occupancy gains and improving rent growth expected into 2027and 2028. And industrial remains the best-performing CRE category due to SoCal port activity, logistics demand and e-commerce.

"A rate hold tomorrow does not materially harm these sectors; stable borrowing conditions may even support more transactional activity," Ressler said.

Hiring Has Cooled in California

But a different sentiment is coming out of Ed Del Beccaro, EVP and San Francisco Bay Area manager of TRI Commercial Real Estate Services/CORFAC International (San Francisco), who expressed concern that tariffs will slightly increase inflation.

"The case for cutting interest rates by at least 25 basis points is that, even though the national economy is still growing, hiring has cooled in California, especially in the San Francisco Bay Area, due to a lackluster job market where employers are reluctant to add employees and fewer workers are quitting," he said.

California lost over 1,700 nonfarm jobs in December 2025, pushing the unemployment rate to 5.5%, the highest in the US.

"This will affect the office market, especially in California, where many office buildings have loans coming due or need refinancing," Del Beccaro said. Continued relatively high interest rates will cause many of these buildings that have high vacancies to be foreclosed on.

Industrial manufacturing will also be affected, with decisions to grow and add capacity delayed by tariff uncertainty and weak employment, he said.

"Tariffs, combined with relatively high interest rates, have slowed job creation, which in turn has caused issues in commercial real estate," according to Del Beccaro.

"I expect [Fed Chair] Jerome Powell to say that, assuming inflation does not dramatically increase, there will be another one or two small interest rate cuts in the next six months."

Marion Jones, principal and executive managing director of U.S. capital markets at Avison Young, told GlobeSt.com that "the Fed's decision to hold rates steady would be no surprise to real estate investors, who remain focused on market fundamentals and long-term growth drivers as much as the interest-rate environment.

While investors generally view today's rate levels as more manageable than in recent quarters, further easing would certainly be "welcomed," Jones added.

Source: GlobeSt/ALM