Fed Rate Hike Threatens Construction Projects with Higher Borrowing Costs

The Federal Reserve raised interest rates by 25 basis points on Wednesday, causing concern for construction projects that are already struggling to stay profitable. According to Michael Guckes, chief economist at ConstructConnect, this move will weaken the profitability calculations of owners and developers considering new commercial real estate projects.

Guckes warned that projects that were previously marginally viable may now fall short of their goals, leading to a decline in new starts. He also noted that existing projects could be impacted by higher borrowing costs for contractors and project owners.

However, Brian Strawberry, chief economist at FMI, pointed out that long-term Treasury yields influence commercial real estate financing more than the Fed's overnight rate. If the Fed's move convinces bond investors that inflation will come under control, longer-term rates could actually fall.