recent decline global real estate market has expanded from the housing market to commercial real estate such as office space and threatens to stifle credit across the spectrum economy.. Non-performing real estate loans totaled nearly $175 billion, about four times more than any other industry. And as interest rates soar and the era of cheap money ends, many real estate markets have practically come to a standstill. Reason, relation financial institutions which offer borrowers to sell assets to avoid foreclosure.

In Europe, in particular, NPLs in the real estate market are at their highest level in a decade, in part due to declining liquidity, according to legal advisory firm Weil, Gotshal & Manges. Data from MSCI Inc show that in the second half of 2022 alone, commercial property prices in the UK fell by more than 20%, while in the US, according to Green Street, the corresponding fall is already around 9%. How do they indicate analysts real estate market, a decrease in the volume of transactions with commercial and residential real estate and development will inevitably affect the costs in the real sector of the economy. This means that it will inevitably threaten economic growth and employment. Already in the US, housing construction company Builders FirstSource laid off 2,600 people, and British Made.com, also popular among the millennial generation, went bankrupt. Swedish home appliance maker Electrolux has announced it will cut 4,000 jobs.

As Ian Guthrie, managing director of real estate consultancy Jones Lang LaSalle Inc., notes, “What is happening during this recession is a truly unique combination of economic conditions where interest rates are rising and hitting the real estate market as well as other industries. “. . As such, he warns that there is a “pipeline that could bring NPLs” as “property prices are falling and capital flows are limited.” He also predicts that this year “these problems will start to show.” It should be noted that, according to Jones Lang LaSalle, every tenth loan issued in Europe for the purchase of commercial real estate is no longer paid, or at least not regularly paid. For many real estate companies, the combination of a pandemic that has changed the way people think about work and life, and a sudden shift by central banks to tight monetary policy with aggressive interest rate hikes on cheap money. The result is a lack of liquidity for many real estate companies. The effects are being felt all over the world.

Lack of liquidity in many real estate companies around the world.

Real estate firm Bookfield warned in November that it could have trouble refinancing debt it took on to build two towers in downtown Los Angeles. By doing so, he hinted that there was a risk of forced auctions, and Barclays analysts called this possibility “worrisome” for the market. What’s more, when the Legoland theme park builder in South Korea announced it was unable to make payments on the project’s debt, it immediately sparked a credit crunch in the country, and the central bank was forced to intervene. And in Australia, construction company Caydon Property Group blamed rising interest rates and lockdowns for its inability to repay debts.

According to Andreas Dobre, who has served as an executive at both the German Bundesbank and the Bank for International Settlements, commercial real estate, from office buildings to large shopping malls, is more prone to financial crises than other assets. And he adds that “in the past, when the bubble burst, it was often because of commercial real estate.”