Reports Say Commercial Real Estate Well-Positioned to Withstand Ukraine Crisis

The crisis in Ukraine has shaken global markets but is unlikely to directly affect U.S. commercial real estate and financial firms, two reports said.

“Oil prices have surged, the stock market moved into correction territory and a flight-to-safety pushed interest rates lower. As the war plays out over the coming days, weeks or perhaps months, a wide range of economic consequences could emerge. Setting aside worst-case scenarios, the war in Ukraine likely holds little direct risk to U.S. commercial real estate,” Marcus & Millichap said in a special report, Implications of the Invasion of Ukraine on Commercial Real Estate. “Although some ripples will likely be felt by investors, hard assets have historically demonstrated durable results in times of turbulence and uncertainty.”

S&P Global Ratings, New York, said the U.S. will feel “ripple” effects of the Russia-Ukraine conflict. “While the U.S. is comparatively isolated from the direct impact of the Russia-Ukraine military conflict, the country will feel some knock-on effects–both for the world’s biggest economy and the businesses and borrowers that operate in it,” S&P said in a report, For U.S., Ripple Effects Of Russia-Ukraine Are More Concerning Than Direct Exposure.

S&P estimated the war and global sanctions could shave 70 basis points from U.S. GDP growth this year, shrinking projected economic growth to 3.2 percent. “The prospects of steadily rising interest rates and persistent inflation are the main drivers of this assessment, with an expected recession in Russia playing only a small part,” the report said.

Marcus & Millichap noted lenders have started assuming a more cautious stance in light of added uncertainty. “Some financiers have begun to reopen their spreads and tighten their leverage requirements,” the report said. “Thus far, the movement has not been significant or broad-based, but if the war in Ukraine escalates, either militarily or through cyberattacks, lenders may adopt a more conservative posture. This implies that even though uncertainty can place downward pressure on Treasury rates, mortgage rates could still rise.”

But because commercial real estate lending rates remain very low by historical standards, rates would have to rise by more than 100 basis points before a substantive share of investors begin to recalibrate their acquisition strategies, Marcus & Millichap said.