Tighter financial conditions, such as interest rate hikes, have affected commercial real estate prices by making it more expensive for investors to finance new transactions or refinance existing loans, according to a new report from the Fund. international currency.
The report, titled “Commercial real estate sector faces risks as financial conditions tighten,” says the trend is reducing investment in the sector.
He added that the tight financial conditions would also have an indirect impact on the sector by slowing economic activity, reducing demand for commercial goods such as shops, restaurants and industrial buildings.
The IMF said financial conditions were important drivers of commercial real estate prices, as they help explain the divergent performance of the sector across regions during the pandemic.
The report said in part: “In general, economies with easier financial terms (i.e. lower real interest rates and other market conditions that make it easier to obtain financing) experienced a smaller drop in commercial real estate prices during the pandemic and a faster recovery. .
“Commercial property prices have also been higher in countries that have implemented relatively less stringent public lockdowns to control the spread of the virus, rolled out larger fiscal support programs and have higher vaccination rates. higher.”
According to the Washington-based lender, a sharp tightening in financial conditions could put the commercial real estate sector under renewed pressure.
This, he said, was particularly in regions where prospects for economic growth were weak and strict containment measures needed to be put in place to curb new waves of infections.
He said disruptions in the commercial real estate market could in turn potentially threaten financial stability due to the sector’s connectivity with the broader financial system and macro-economy.