China, whilst strong in absolute terms, is weak relatively.

Insurers globally have between 9% to 12% exposure to the Commercial Real Estate (CRE) market through direct and indirect investments, including mortgages, bonds, and directly owned real estate, Gallagher Re said in a recent insight.

The rise in remote work due to COVID-19 has significantly increased the availability of commercial real estate in city centres, with no signs of reversal, Gallagher Re’s Commercial Real Estate Investments: A Macroeconomic outlook for Insurers stated.

China, whilst strong in absolute terms, is weak relatively. Its 2023 growth was 5.2%, up from a low pandemic base in 2022, but below its pre-2020 trend. Real estate investment shrank by 12% in 2023, with many banks’ balance sheets impaired. 

Insurers’ investments in CRE mean losses in this sector would quickly impact their assets. CRE, tied closely to economic activity, benefits from low interest rates and liquidity infusions by central banks. In downturns, interest rate cuts can soften the impact. 

However, CRE remains a volatile sector, with asset prices prone to rapid changes within the business cycle.

Banks have increased their investments and extended credit lines to CRE, helping the sector remain buoyant despite challenges. 

However, growing geopolitical tensions and global inflation raised concerns in early 2024 about a potential major downturn in the CRE market. 

Given the importance of real estate to the broader economy, such a downturn could trigger a recession. 

Current data suggests that whilst some countries might face a recession in 2024, the CRE market is likely to remain stable. The US shows thriving productivity despite EU stagnation, whilst China’s housing market raises concerns. 

Post-pandemic remote working trends have increased office vacancies in city centres. Despite this, the construction sector remains resilient, driven by rising productivity, property prices, and low unemployment.

Although a deep recession seems unlikely, there might be a downward revaluation of insurers’ CRE assets, prompting a reevaluation of their investment strategies. 



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