Graduation Year

2026

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Patrick Van Horn

Reader 2

Roberto Pedace

Abstract

This thesis examines the relationship between interest rates and commercial real estate activity in the United States, with a focus on commercial real estate lending volumes and transaction activity across major property sectors. Using quarterly time-series data from 2000 through 2025, the analysis evaluates how changes in the federal funds rate and the 10-year treasury yield influence aggregate CRE lending activity, overall transaction volume, and sector-level transaction activity for office, multifamily, retail, and industrial properties. The empirical analysis employs log-linear regression models with Newey-West standard errors and includes macroeconomic controls for real GDP growth, inflation, unemployment, recession conditions, and credit spreads. To address concerns related to non-stationarity, Augmented Dickey-Fuller tests, first-difference specifications, and Engle-Granger cointegration tests are incorporated into the analysis. The results indicate that long-term interest rates, measured by the 10-year treasury yield, exhibit a strong negative relationship with CRE transaction activity across all major sectors, while the federal funds rate becomes statistically insignificant once long-term rates are included. The findings suggest that commercial real estate markets respond more strongly to long-term financing conditions than to short-term monetary policy rates. Sector-level results further demonstrate that multifamily and office properties exhibit particularly strong sensitivity to long-term interest rates and broader financial conditions. Overall, the analysis highlights the importance of capital market conditions in shaping commercial real estate investment activity and provides updated evidence on the relationship between interest rates and CRE market performance during a period of historically significant monetary tightening.

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This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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