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The Decline In Commercial Real Estate Is Deemed A Major Concern By UBS

The Decline In Commercial Real Estate Is Deemed A Major Concern By UBS
One of the "top and emerging risks" that UBS identified for the Swiss bank was the decline in the commercial real estate markets, which was impacted by lower office space demand during the pandemic and higher borrowing costs.
The largest slump in the commercial real estate markets since the 2008–2009 financial crisis is currently affecting both the US and European markets.
In its 2023 annual report, released earlier this week, the bank stated that "adverse effects on valuations from higher interest rates and structural decline in demand for office and retail space may trigger broader impacts given bank and non-bank lenders' material balance sheet exposure to the sector."
UBS noted that the purchase of its competitor Credit Suisse was a major factor in the group's increasing risk exposure to the industry, which rose to $55.09 billion in 2023 from $47.1 billion in 2022. Official data indicates that a number of other major European banks have greater loan exposures to commercial real estate.
"Top and emerging risks" are those, according to UBS, that could manifest within a year and have a major impact on the firm. On Thursday, additional hazards were discussed, such as inflation and geopolitics.
UBS does not list commercial real estate as one of the top risks in its most recent annual report.
The bank did not provide a breakdown of its exposure to the particularly troubled U.S. commercial real estate industry.
There, valuations have collapsed, placing pressure on deeply leveraged German lenders, some regional U.S. banks, and troubled developers.
According to analysts, the impact of a further slump on large banks worldwide should be minimal and controllable, with little effect on their earnings.
The International Monetary Fund warned banks on Thursday to exercise caution when it came to Swiss real estate issues.
"The financial sector is resilient with strong buffers, but vulnerabilities from the real estate sector remain," the IMF said after concluding its review of the Swiss economy.
UBS stated in its annual report that there were now more climate-related transition risks associated with a larger exposure to Swiss commercial real estate.
According to the bank, this is because Switzerland implemented the Climate and Innovation Act last year, which is expected to have an impact on energy efficiency regulations.
As one of the main sources of carbon emissions, lenders are attempting to lower the emissions associated with their property loans.
A number of European bank executives have warned that companies will find it difficult to meet climate commitments unless governments tighten regulations surrounding the decarbonisation of real estate.
UBS announced on Thursday that it aimed to reduce emissions by 48% for its commercial business and 45% for its Swiss residential property book by 2030.

Christopher J. Mitchell

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