How might the Ukraine crisis affect commercial real estate markets?


The human impact of the invasion of Ukraine is devastating, and our thoughts are with the people affected.

As real estate investors, we need to assess the market implications of the crisis and - in brief - we think that on real estate markets in western Europe its impact is likely to be limited.

Real estate impact – in brief

The direct impact of sanctions on occupiers and real estate investment markets in western Europe is likely to be modest. Russian cross-border investment in commercial real estate globally has averaged only €300 ($330) million per annum over the last five years (source RCA).

To put that in context, there was €340 billion of investment deals in Europe in 2021. Anecdotally, Russian investors have been more active in residential markets, particularly in London and Helsinki. The Ukraine real estate market is largely domestic, with very few international investors.

The crisis might lead to a slight shift in investor demand away from real estate in central Europe and towards markets which are perceived to be safe havens (e.g. London, Paris, Switzerland). The fall in 10-year bond yields since the start of the war in Ukraine adds support to the view we held before the crisis, that real estate in the UK and eurozone is fairly priced.

Economic impact – in brief

Most of the impact will be indirect, via the economy, in terms of slightly higher inflation, lower growth and the added factor of central banks being slower to raise interest rates. However, there should be little change in extant trends in this regard.

The war has added to inflationary pressures on energy and food prices, reflecting Russia’s importance as an exporter of oil & gas and Ukraine’s role as a major exporter of wheat.

It’s conceivable that Russia might retaliate for sanctions imposed by countries around the world by reducing exports of oil and gas. However, that would further damage its own economy. 40% of EU gas imports come from Russia. Germany imports 60% of its gas from Russia and Italy 40%. France (20%) and the UK (10%) are less reliant on Russian gas.

Overall, despite the acceleration in inflation, Schroders is still forecasting relatively strong economic growth this year of 3.3% in the eurozone and 4.3% in the UK, as pent-up savings provide a cushion for consumers against the impact of higher living costs. Russia accounts for less than 1% of UK exports and 3% of eurozone exports.

Moving situation

We will continue to monitor the situation in the coming weeks, hoping a resolution is found as soon as possible.