Fed's Move to Cut Interest Rates Could Finally Spark Activity in Bay Area Capital Markets

After the initial shock of the COVID-19 pandemic, negative real interest rates fueled a surge in investments, driving an influx of office sales transactions across the Bay Area. In 2022, the Fed's aggressive rate hikes to combat inflation sharply curtailed office sales, leading to a prolonged slump in transactions that has yet to recover.

• After the initial shock of the COVID-19 pandemic, negative real interest rates fueled a surge in investments, driving an influx of office sales transactions across the Bay Area.
• In 2022, the Fed's aggressive rate hikes to combat inflation sharply curtailed office sales, leading to a prolonged slump in transactions that has yet to recover.
• Despite rising defaults and severe solvency challenges for landlords facing low office occupancy rates, lenders have been hesitant to foreclose. A lack of buyer interest has prompted many lenders to prefer  extending or restructuring loans rather than liquidating assets at steep losses.
• The Fed’s recent 50-basis-point rate cut may soon unlock pent-up demand, setting the stage for renewed sales activity and initiating what many expect to be a generational fire sale in San Francisco’s distressed office market.