ESRB issues a recommendation on vulnerabilities in the commercial real estate sector

The Swedish Financial Supervisory Authority, Finansinspektionen (FI), has issued a press release in relation to a recently published recommendation by the European Systemic Risk Board (ESRB) pertaining to prevailing risks in the commercial real estate sector in the EU. The recommendation calls for increased risk monitoring by financial institutions and supervisory authorities and for the consideration of „activity-based macroprudential policy“ measures to mitigate those risks (please see EventID 19334 in this context for a detailed description of the recommendation).
The FI now states that it highly welcomes the recommendations particularly in view of the current situation in the Swedish commercial real estate sector. The sector, so FI, is characterized by a high level of indebtness. The high inflation coupled with rising interest rates to fight the inflation leads to an increase in the costs of refinancing loans and thus may contribute even further to the indebtness of market participants. The potential effects may be dramatic with falling values of firms and a loss of profitability. Therefore, FI commends the the ESRB on its work and notes that „it emphasises the importance of continuing the work of addressing the vulnerabilities in the commercial real estate sector“.