According to a recent analysis by the International Monetary Fund (IMF), tighter financial conditions, such as interest rate increases, have impacted commercial property prices by making it more expensive for investors to finance new deals or refinance current loans.
This tendency was cited as reducing investment in the sector in the report “Commercial Real Estate Sector Faces Risks as Financial Conditions Tighten.”
The report went on to say that the challenging financial conditions will also have an indirect effect on the industry by slowing economic growth and lowering demand for commercial real estate including stores, restaurants, and factories.
According to the IMF, financial conditions play a significant role in determining the price of commercial real estate since they contribute to the explanation of the sector’s inconsistent performance across areas throughout the epidemic.
In general, economies with simpler financial conditions (lower real interest rates and other market conditions that make it easier to obtain financing) had a lesser decrease in commercial property prices during the pandemic and a speedier recovery, according to the analysis.
“Commercial property prices have also been higher in countries which implemented relatively less stringent public containment measures to control the spread of the virus, rolled out larger fiscal support packages, and have a higher vaccination rate.”
A significant tightening of financial conditions, according to the Washington-based lender, could put the commercial real estate industry under new pressure.
This, it claimed, was especially true in areas with poor prospects for economic growth and where severe containment measures are required to stop the spread of new illnesses.
It stated that because of the sector’s interdependence with the financial system and the larger macroeconomy, market disruptions in the commercial real estate sector could, in turn, pose a risk to the stability of the financial system.
, tighter financial conditions, such as interest rate increases, have impacted commercial property prices by making it more expensive for investors to finance new deals or refinance current loans.){kind=link}