Remember January? Markets were pricing in three or four rate cuts for 2026 (per CME FedWatch), and CFOs everywhere were quietly penciling in cheaper refinancing like it was a done deal. Well, that didn’t age well.
On September 16th, the Fed voted unanimously to raise the federal funds rate by 25 basis points, to 3.75%–4.00%. That reverses part of the 2025 easing cycle. Sticky, reaccelerating inflation, energy price shocks, and an economy that refuses to slow down meant no cuts in the first half of the year. When Kevin Warsh took over as Fed Chair in late May, the conversation shifted from “when do we cut?” to “how much do we hike?” Markets now expect one more 25 bp hike before year-end, which would put the target range at 4.00%–4.25%.
The message to anyone who owns or leases commercial space is simple: capital is expensive, and it’s staying that way. If your 2027 real estate plan quietly depended on rates coming down, now is a good time to find a new plan.
Here’s what smart occupiers are doing about it.
1. The Sale-Leaseback Is Back (It Never Really Left, It’s Just Popular Again)
Refinancing costs more and lenders are tightening loan-to-value limits, so companies that own their buildings are asking an obvious question: why is all this capital sitting in bricks and mortar when we could use it for the business?
A sale-leaseback lets you convert real estate equity into cash at today’s market value, redeploy it into operations that actually earn your target returns, and skip the expensive corporate debt market entirely. You keep the keys while someone else keeps the mortgage.
The catch is that buyers and sellers disagree more than usual on price. The September hike widened the bid-ask spread, and sellers holding out for 2024-era cap rates are learning to adjust their expectations. Still, when liquidity becomes the priority, a slightly lower price looks a lot better than a much more expensive loan.
2. Every Empty Square Foot Is Now Costing You More
That underused warehouse, the surplus land bought “for future expansion” in 2019, the satellite office where nobody has been since the coffee machine broke. In a higher-rate world, these aren’t strategic reserves; they’re expensive hobbies that are costing your company real dollars.
Corporations are speeding up portfolio reviews and selling surplus land and underused facilities to pay down debt and eliminate carrying costs. If an asset isn’t pulling its weight, it’s time to move it off the balance sheet.
3. Let the Landlord Pay for the Build-Out
When your own borrowing costs rise, spending corporate cash on drywall and ductwork loses its appeal. Tenants are shifting from CapEx to OpEx in lease negotiations and pushing for two things:
Bigger tenant improvement allowances. Ask the landlord to deliver turnkey space, even if that means a higher base rent. You’re essentially financing the build-out through the lease, often at a better effective rate than your own treasury could get.
Amortized capital improvements. Build facility upgrades into the lease terms instead of writing a large check upfront.
Keeping cash in the business, where it earns more, beats tying it up in conference room furniture.
The Bottom Line
The Fed’s latest move makes one thing clear: cost of capital, not cap rate compression, will drive real estate strategy from here. Owner-occupiers should manage their real estate like the balance sheet asset it is. Tenants should use lease structures to protect operating cash flow. The occupiers who come out ahead will be the ones with agility, credit discipline, and a real plan for every asset. Hope, as they say, is not a strategy. Neither is waiting for a rate cut.
