JPMorgan Asset Management’s boss has warned that commercial real estate is “one of the critical areas of risk” in global markets due to action by central banks.
“When the Federal Reserve hits the brakes, something goes through the windshield,” chief executive George Gatch said at the $2.5tn asset manager’s European Media Summit on Tuesday.
The bursting of the Ark Invest “speculative bubble” and the collapse of Silicon Valley Bank and Credit Suisse highlighted the stresses caused by rising interest rates.
“What is the next impact?” asked Gatch. “Commercial real estate is an area of concern. We have higher interest rates for property developers, how does that impact the real estate market and lenders in that space?”
He is not the only one issuing a note of caution. In a note on Tuesday, Goldman Sachs said the commercial real estate sector was dealing with a “challenging” environment.
“The recent stress in the banking sector has fuelled growing concern about spillover effects on the commercial real estate industry. With over half of the $5.6tn of outstanding commercial loans sitting on bank balance sheets, bank lending remains the primary source of funding for the sector. This is particularly the case for small banks, which capture the lion’s share of lending.”
Also on Tuesday, Bank of America said investors in its monthly fund manager survey were more bearish on real estate than they have been since October 2020, having taken cautious positions on the asset class since September.
