Russia’s invasion of Ukraine has led to economic sanctions that will have collateral damage on the global economy. The damage may spread to the U.S. real estate market, but some analysts say the impact will be negligible.
Russian oligarchs have purchased some of the most expensive properties in New York City and Miami, and their assets could be blocked or frozen. But Russian capital is very minor in global property markets, with outbound flows averaging just $330 million per year in the last five years, according to Real Capital Analytics. Known Russian ownership of commercial assets in the world’s biggest property markets is minimal. Ukraine’s institutional property market is also small and domestic, so international exposure is sparse.
The assets of Russian officials identified by the U.S. as being close to Vladimir Putin or supporting the invasion will be blocked and frozen, as the Treasury Department compiles a list of Specially Designated Nationals from Russia and Belarus. American banks are also likely to place deals with Russian businesses or investors under the microscope. But beyond that, the impact on U.S. commercial real estate won’t be felt by many.
Real Capital Analytics’ report stressed the situation in Ukraine will more likely cause indirect impacts on commercial real estate via higher commodity prices, worsening inflation, and perhaps hampering economic growth. The most significant impact will be energy prices, particularly in Europe, where Russia accounts for 38 percent of all European Union natural gas imports, according to Eurostat.
Russia’s invasion of Ukraine may not hammer commercial real estate but could still cause broader economic pain. And it could also be a harbinger of more uncertain times and political instability that will impact real estate indirectly but in certainly unwelcome ways.