Commercial Real Estate and Macrofinancial Stability During COVID-19

55 Pages Posted: 17 Feb 2022

See all articles by Andrea Deghi

Andrea Deghi

International Monetary Fund (IMF)

Junghwan Mok

International Monetary Fund (IMF)

Tomohiro Tsuruga

International Monetary Fund (IMF)

Date Written: November 1, 2021

Abstract

The COVID-19 pandemic crisis has severely shocked the commercial real estate (CRE) sector, which could have important implications for macro-financial stability going forward because of the large size of the sector and its strong interconnectedness with the real economy. Using a novel methodology, this paper quantifies vulnerabilities in the CRE sector and analyzes policy tools available to mitigate related risks. The analysis shows that CRE prices were overvalued in several major advanced economies in 2020:Q1. It also shows that such price misalignments increase the likelihood of future price corrections and exacerbate downside risks to future GDP growth. While the path of recovery in the sector will depend inherently on the pace of overall economic recovery and the structural shifts induced by the pandemic, easy financial conditions may contribute to an increase in financial vulnerabilities and persistent price misalignment. Macroprudential policy can, however, be effective in curbing the financial stability risks posed by the CRE sector.

Keywords: Commercial Real Estate, Asset Prices, Growth-at-Risk, Panel Quantile Regression, Macroprudential Policy, price misalignment, CRE sector, data description, CRE valuation, price correction, COVID-19, Real estate prices, Global financial crisis of 2008-2009, Financial sector risk, Global

JEL Classification: E51, E52, E58, G32, H81, I12, R30, E44, G01, G18

Suggested Citation

Deghi, Andrea and Mok, Junghwan and Tsuruga, Tomohiro, Commercial Real Estate and Macrofinancial Stability During COVID-19 (November 1, 2021). IMF Working Paper No. 2021/264, Available at SSRN: https://ssrn.com/abstract=4026494

Andrea Deghi (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th St NW
Washington, DC DC 20431
United States

Junghwan Mok

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Tomohiro Tsuruga

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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