The lack of infrastructure and the rise of e-commerce are a threat to the commercial real estate sector, but investors are more concerned about issues relating to monetary and trade policies, a report has revealed.
The report by the UK’s Royal Institution of Chartered Surveyors (RICS) showed underlying macroeconomic conditions are “indisputably critical” to the health of the commercial real estate sector.
RICS’s first-quarter Commercial Real Estate – Risks and Opportunities survey, which polled in 1750 real estate professionals globally, has shown that issues surrounding monetary and trade policies “could carry significant adverse effects for real estate capital flows”.
For instance, the European Central Bank’s (ECB) Governing Council cutting net purchases within its asset purchase programmes from the monthly pace of €60bn to a new monthly pace of €30bn from January 2018 until the end of September 2018.
Research by Patrizia Immobilien, last month, has already highlighted that institutional investors that target European real estate should pay more attention to liquidity in 2018, following a reduction in the ECB’s quantitative easing programme.
The RICS survey showed that geopolitical and economic uncertainty risk score was 100.
While global economic growth seems to be strengthening in a more widespread fashion than for some time, beneath the healthy near-term outlook, reasons for caution are not difficult to find, RICS said.
“The prospect of an imminent turning point in global monetary policy, for instance, poses perhaps the most substantial risk at present.”
RICS added that a further escalation in global tensions around trade policy could carry significant adverse effects for real estate capital flows.
Changing consumer preferences, which scored 81, are viewed as the next most substantial risk to the sector, the report said.
Already, the large shift towards e-commerce in recent years has challenged the retail sector, with a different approach needed to suit changing consumer habits.
In the UK, for instance, high-street retailers like New Look, Carpetright, Toys R Us and Maplin have all become insolvent due in part to competition from online retailers.
At the same time, the industrial sector, particularly logistics, has benefited from such change, RICS said.
Inadequate infrastructure is also seen as a significant challenge, RICS said as it recorded a score of 81.
RICS added that sufficient investment will be needed to ensure transport and utility structures are able to cope with the pressures brought by rising populations in urban areas.
“Without this, there will be adverse implications for both economic growth and real estate sector.”
RICS also highlighted that the issue of cybersecurity scored 16, despite some major incidences last year.
“Although clearly a threat, its impact on commercial real estate is not thought likely to be quite as significant as the other risks.”