04.07.2022
The commercial real estate sector remains an important sector in terms of the size of its assets and the impact this can have on financial stability, stresses the credit rating agency DBRS, stressing, however, that a rapid and significant increase in the cost of financing can put pressure on borrowers and therefore affect on the quality of banks.
In a special report on some of the challenges investors face when analyzing the risks associated with European banks’ commercial real estate, the Canadian Chamber says that total commercial real estate assets account for a significant portion of the country ‘s GDP and about 12% of total European bank loans at the end of the first half of 2021.
While the long-term impact of the pandemic on the commercial real estate sector remains uncertain, the conflict in Ukraine poses additional challenges for the sector, according to DBRS, as supply chain disruptions and rising commodity and energy prices increase construction costs, while the long-term effects of the pandemic for the sector are still uncertain.
The Canadian House also reports that past experience has shown that the commercial real estate sector can create “serious problems for the banking sector due to its cyclical nature” and notes that several bank failures in countries such as Ireland, Spain and the Nordic countries have been linked with the bursting of the bubble in the residential and commercial real estate market.
Claiming that the COVID-19 pandemic has significantly impacted the commercial real estate sector since 2020, the firm says that for parts of the sector, the pandemic has exacerbated some existing structural changes, such as shifting consumer preferences away from traditional retailers. bricks in e-commerce.
It also says that the expansion of work from home creates the basis for possible structural changes in the office sector.
In addition, DBRS reports that other medium and long-term structural changes are expected in the commercial real estate sector due to climate risks and changing legislation, given that the commercial real estate sector is a significant contributor to greenhouse gas emissions and is a large user of . energy .
Finally, DBRS reports that banking disclosure of commercial real estate remains generally limited in Europe, but “we recognize that regulators and supervisors have increased their levels of control, harmonization and transparency in recent years .” On average, he adds, banks in northern Europe tend to disclose more information about their industry risks than their southern counterparts.
