How Interest Rates Are Affecting Commercial Real Estate Deals in Texas

CBCAAA will guide you to find the best approach with interest rate challenges.

Rising interest rates have been one of the most talked-about topics in real estate over the past two years, and Texas is no exception. From Houston’s industrial market to Southeast Texas office leasing, financing trends are shaping how investors, developers, and businesses approach commercial real estate.

Here’s a look at how interest rates are impacting deals across the state.

1. Higher Borrowing Costs Are Slowing Some Deals

As rates climb, the cost of financing rises. Many investors are re-evaluating projects that rely heavily on debt financing. Deals that looked profitable when interest rates were

3%–4% are now much harder to pencil out at 7%–8%. This shift has slowed some acquisitions, particularly in retail and office sectors.

2. Cash Buyers and Strong Equity Positions Have the Advantage

While debt-heavy investors may be stepping back, cash buyers or those with stronger equity positions are in a better spot. They can move quickly and often negotiate better terms since sellers know financing hurdles won’t delay the transaction.

3. Cap Rates Are Adjusting

Commercial real estate values are tied to interest rates through cap rates. As borrowing costs increase, cap rates are also rising, putting downward pressure on property values. Buyers are demanding better returns to offset the cost of debt, which is creating a gap between seller expectations and buyer offers.

4. Certain Sectors Remain Resilient

Not all property types are impacted equally. In Texas, industrial and multifamily sectors remain strong thanks to high demand and limited supply. Southeast Texas, for example, is still seeing interest in land and industrial projects tied to energy, shipping, and logistics, even with higher borrowing costs.

5. Creative Financing is Gaining Popularity

To bridge the financing gap, investors and developers are turning to:

• Short-term adjustable loans

• Seller financing

• Joint ventures with equity partners

  
  

These structures are helping keep deals alive while waiting for more stability in interest rate trends. Interest rates are reshaping the way commercial real estate deals get done in Texas. While higher borrowing costs are slowing some transactions, well-capitalized investors and strong market sectors continue to create opportunities. For buyers and sellers alike, understanding financing trends and working with an experienced commercial real estate team can make the difference between a stalled deal and a successful investment.