Commercial property is valued on the rental stream the property attracts at an appropriate discount rate (risk free rate plus a risk premium). As the economy's interest rates rise, the discount rate rises and the resultant derived value falls. This assumes rentals don't rise and another poster pointed this out. However, the commercial property market vacancy rate may preclude offsetting rental increases.
As commercial property values fall in the company, the reduction in value is taken to the profit and loss statement. All else being equal, total assets fall and profits fall.
In a slow interest rate increase period over years, the change is gradual. With rapid interest rate increases, all else being equal again, the annual revaluation could have a material impact.
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