Commercial Real Estate Prices During COVID-19: What is Driving the Divergence?
Global Financial Stability Notes, August 2, 2022
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Bibliographic details
- Authors: Andrea Deghi, Fabio M Natalucci, Mahvash S Qureshi
- Published: August 2, 2022
- Series: Global Financial Stability Notes
- DOI: https://doi.org/10.5089/9798400216848.065
Summary and scope
- Authors: Andrea Deghi, Fabio M Natalucci, Mahvash S Qureshi
- Publication date: August 2, 2022
- Scope: City-level data from major advanced and emerging market economies; analysis of heterogeneity in commercial real estate (CRE) price declines and recoveries across regions and market segments.
Key findings
- Pandemic-specific factors strongly associated with CRE price declines:
- Stringency of containment measures correlated with larger price declines.
- Spread of the virus correlated with larger price declines.
- Policy and macro-financial cushions:
- Fiscal support helped cushion the shock to CRE prices.
- Easy financial conditions maintained by central banks helped cushion the shock.
- Role of vaccination and structural behavioral changes:
- Higher vaccination rate aided recovery of the sector, especially in the retail segment.
- Structural changes in private behavior (teleworking, e-commerce) impacted prices in some CRE segments.
- Outlook drivers:
- Sector outlook remains closely tied to: trajectory of the pandemic; broader macroeconomic recovery; financial market conditions; pace of structural shifts in demand for specific property types.
- Financial stability concern:
- In an environment of tightening financial conditions and a slowdown in economic activity, continued vigilance by financial supervisors is warranted to minimize financial stability risks from potential adverse shocks to the sector.
Policy implications and recommendations
- Maintain vigilance by financial supervisors to monitor and mitigate financial stability risks stemming from CRE exposure.
- Recognize that fiscal support and accommodative central bank policies have mitigated CRE price declines; withdrawal or tightening of these supports could alter recovery dynamics.
- Track vaccination progress and pandemic containment developments as they materially affect recovery prospects, particularly in retail.
- Anticipate and plan for structural demand shifts (teleworking, e-commerce) that may permanently alter demand across CRE segments.
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- Gfsnea2022002