UBS flagged on Thursday the downturn in commercial real estate markets as one of the "top and emerging risks" facing the Swiss bank, as higher borrowing costs and a post-pandemic slump in demand for office space hit the sector.
Commercial property markets in the United States and Europe are in the grip of the biggest slowdown since the 2008-9 crash.
"Adverse effects on valuations from higher interest rates and structural decline in demand for office and retail space may trigger broader impacts given bank and non-bank lenders' material balance sheet exposure to the sector," the bank said in its 2023 annual report published on Thursday.
UBS said its risk exposure to the sector across the group increased to $55.09 billion in 2023 from $47.1 billion in 2022, largely due to the acquisition of its rival Credit Suisse. Several other big European banks have larger loan exposures to commercial real estate, official data shows.
UBS defines "top and emerging risks" as those which have the potential to materialise within one year and could significantly affect the group. Other risks detailed on Thursday included inflation and geopolitics
