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Firstly , allow me to introduce myself as REI Magazine ’ s new content editor . I ’ m excited to continue providing and improving the quality of investor information and real estate insights that you have come to value since our first REI Magazine edition was published in 2007 . We have a few innovative ideas for the REI platform that we will be introducing over the next few months so keep your eyes on this space .
And what a particularly inauspicious time it is in the world right now . As if the economic impact of COVID pandemic was not enough for global economies to deal with , Putin ' s unhinged warmongering in Ukraine is shaking up the world ’ s fragile geopolitical balance to the point that we find ourselves on the brink of World War Three .
While there is an adage that claims opportunity in volatility , the potential for a major international warfare means that institutional investor ’ s appetite for risk is at an all time low , especially in emerging markets such as South Africa , and this does not bode well for our economic outlook in the near future . Energy and food costs will soar which will drive up market volatility as well as the cost of equity ; and this will result in downward pressure on returns .
Investor ’ s knee-jerk reaction to volatility in the equity markets often causes stock prices to fall , which results in a downward adjustment in wealth across the board . Less wealth and low risk appetite means less investment to keep the commercial real estate wheels churning . During periods of heightened global volatility , we can expect many investors to pull their money out of commercial real estate in favour of “ safer ” investments such as bonds and commodities .
When it comes to assessing the macro impact of a protracted large-scale war on commercial real estate , we only really have the precedents set by the two previous World Wars to study . In these cases , America , Japan and Europe shifted economic production to feed the war machine . Instead of investing in traditional goods and services , resources and capital were disproportionately redirected from normal economic activity into the war effort . A direct result was less home building and less investment into new office buildings , retail centres , hotels and such for the duration of the previous two World Wars .
However , in the immediate aftermath of World War Two there was a surge in demand for real estate as soldiers returned home to settle down and build homes for their families . Job creation was accelerated and the expansion in civilian employment led to increased demand for commercial real estate , and values saw a healthy rise across the real estate board .
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The fact that commercial real estate is an illiquid asset class makes it difficult to quantify the long-term impacts of a protracted war . Generally speaking , heightened market volatility is not ideal for investors with a short term horizon . Those close to retirement or needing investment income will suffer from a fall in equity markets and a decreased demand for commercial property . But those investors with patience and diverse income streams could be well placed to survive the storm , and could prosper if they have the resources to take advantage of generational investment opportunities .
As it stands , the staunch sanctions levelled against Russia have torpedoed their economy to the point where many expect it will take years , if not decades , to recover . And while we all hope for a swift and peaceful resolution to the hostilities , it seems wise to be prepared for a protracted conflict in Europe , and the economic impact will certainly spill over to
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