How the Pandemic Has Impacted the Commercial Real Estate Sector and What Repercussions It Will Have on Markets’ Financial Stability

Abstract

The COVID-19 related restrictions have disrupted various economic activities. Due to the nature of this pandemic, each industry has been affected differently. Considering that the Commercial Real Estate sector (CRE) is a contact-intensive industry, it was one of the most negatively impacted. As such, this study aims to explore the impacts of such circumstances on the sector itself and subsequently on the financial stability in Hungary. Therefore, this research is based on a deductive theory approach with the use of a mixed method complex as the methodological choice. Accordingly, I aim to explore the implications of CRE through semi-structured interviews conducted with institutional actors to capture CRE market sentiment, followed by a short questionnaire to target precise macro and micro indicators. Subsequently, reflect them on market fundamentals; macroeconomic data and industry-specific ones, to judge if market sentiment and fundamentals are on a converging passage or a diverging one. In essence, the study concludes, based on the gathered data, that sentiment and fundamentals were in alignment, but operating at different intensities (fundamentals are less positive than sentiment suggests), signs of divergence were starting to appear. However, due to the Russian-Ukrainian war, sentiment has received a huge shock, which has made market players more cautious and also weakened the overall market sentiment. Furthermore, market transparency does not give a complete picture of potential risks, as such more effort should be put to be able to monitor existing and to be delivered properties, not only the prime stock but also secondary and tertiary ones. This study also aims to contribute to knowledge and understanding of institutional actors’ sentiment and perception of the CRE market in Hungary. Based on the importance, at the same time, the scarce academic research dealing with it. As such, I aim to create momentum for future academic research devoted to the real estate sector in Hungary. Finally, I advise interested persons researching this topic to use interviews and questionnaire types of data collection, and to involve more players, especially representatives from financial institutions and public sectors.