MSCI Real Assets research on tenant default risk in European CRE

The global economy and real estate markets face a multitude of cyclical and secular threats, with many of these challenges having a direct impact on tenants, according to research by MSCI Real Assets.

Inflation is putting severe pressure on the cost bases of companies, while also dampening consumer demand for products. Both factors impact the ability of tenants to afford rents, which ultimately drives real estate’s income returns. Rising inflation also leads to increasing interest rates, further reducing the free cash flow from the portfolios of levered real estate investors. Against this backdrop, understanding tenant-default risk is more important than ever, according to MSCI.

The collection of tenancy data across a whole portfolio and consistent analysis of tenant-default risk are both time-consuming and difficult. MSCI found that real estate managers and investors do not go beyond analysis of only their largest tenants. In its study of the balanced funds within t