The author of this article says that in uncertain times, the best investment model is one that stops treating geopolitics as a “missing variable.”
The author considers why investors underestimate
macro-political risk, and how it quietly reshapes yield,
liquidity, and exposure in commercial real estate. The article is
part of a series of three from Dr Victor Chukwuemeka (pictured
below), the founder of Edgewise CRE. He
is an economist, trader, researcher and teacher.
Edgewise CRE is
a research platform which translates global economic and
real estate trends into actionable insight for investors. Dr
Chukwuemeka has written for our publications
before, here for
example.
Dr Victor Chukwuemeka
The editors are pleased to share this material; the usual
editorial disclaimers apply to views of guest writers. To
comment, email tom.burroughes@wealthbriefing.com
and amanda.cheesley@clearviewpublishing.com
For decades, most commercial real estate (CRE) models have been
built on familiar variables: Interest rates, rent growth,
capitalisation rates, debt costs, and tenant credit. Yet one
factor remains strangely absent from the
spreadsheets – geopolitics.
In an age of trade wars, sanctions, cyber conflict and policy
volatility, macro political risk is no longer an abstract notion.
It directly affects yields, liquidity, and the way risk itself is
priced. Still, many investors treat geopolitics as background
noise rather than as a core variable. That omission is
increasingly costly.
Why the variable gets ignored
Traditional investment analysis is built on data that is
measurable and relatively stable. Rents can be projected,
interest rates modelled, and vacancy rates tracked. Geopolitics,
on the other hand, adopts many forms; it is fast-moving and
often difficult to quantify.
Because its outcomes are difficult to model, many analysts still
consider geopolitical risk to be a “tail event.” Yet
research from the International Monetary Fund shows that spikes
in geopolitical tension correlate with higher risk premia,
capital flow reversals and asset price corrections (IMF,
World Economic Outlook 2024). In other words,
geopolitics may be volatile, but its financial effects are
measurable and recurring.
How geopolitics reshapes yield
Yield is more than just the balance between income and growth; it
reflects the market’s tolerance of uncertainty. When
political risk rises, investors demand compensation in the form
of wider cap rates. (Editor’s note: A higher cap rate
generally indicates higher risk and return, while a lower cap
rate suggests lower risk, which is used to compare the relative
value and profitability of different properties.)
Recent global surveys show that investors are now explicitly
incorporating political and regulatory uncertainty into their
hurdle rates. In markets facing higher national security or
regulatory risk, pricing has already adjusted upward.
Meanwhile, cross-border capital is retreating. Foreign direct
investment into the world’s 20 largest recipient countries
averaged 1.3 per cent of GDP in 2023 to 2024, the lowest since
1996 (Savills, Impacts 2025: Geopolitics). When global
capital pauses, valuations lose support and required yields rise.
What looks like a local pricing anomaly often reflects a global
risk repricing.
Liquidity: the silent casualty
Liquidity, the ability to sell an asset without major loss, is
often where geopolitics bites first. Listed property vehicles can
adjust swiftly to new information, private markets cannot. A
sanction, border closure or abrupt policy shift can freeze
transactions overnight. Even without direct exposure, sentiment
alone can widen bid-ask spreads and delay exits.
This is visible in the push towards “nearshoring” essentially,
this is described as moving supply chains nearer to
their primary markets. That trend, partly a response to
geopolitical risk, redistributes liquidity, stable jurisdictions
gain depth, while others experience thinner trading and slower
recovery. A model that assumes a smooth five-year exit may
therefore overstate liquidity and understate holding-cost
risk.
Risk exposure is being rewritten
Traditional categories, market, credit, and tenant risk no longer
capture the full picture. Political fragmentation,
national-security screening, and technological decoupling are
creating new forms of exposure.
Investors in data centres, for example, must now account for
data-sovereignty laws that restrict ownership or require domestic
hosting. Industrial and logistics assets linked to global supply
chains are more sensitive to tariffs and export-control policies.
Even offices can be affected when multinational occupiers change
footprint strategy in response to diplomatic friction.
If models still assume frictionless globalisation, they are
working from a world that no longer exists.
The myth that it can’t be measured
One reason why geopolitical risk remains under-modelled is the
belief that it cannot be quantified. That assumption no longer
holds. In practice, it can be measured – and successfully
integrated into underwriting.
In my own work with institutional investors, we have applied a
structured approach using a blend of geopolitical indices,
country risk scores, and sensitivity analysis. The process
involves three steps:
1. Baseline exposure mapping – identifying where assets,
tenants, or cash flows intersect with politically exposed
jurisdictions or supply chains;
2. Probability weighting – drawing on independent risk
indices (such as the Economist Intelligence Unit, Marsh, or
Verisk Maplecroft) to assign relative likelihoods to events such
as sanctions, policy reversals or trade restriction; and
3. Impact calibration – translating those probabilities into
financial terms: potential yield expansion, liquidity delay, or
capital value drawdown.
The outcome is not a crystal ball but a disciplined framework. In
our case, this approach enabled investors to reduce concentration
risk, improve portfolio resilience and, importantly, spot
undervalued assets where the perceived political risk was
overstated.
The experience demonstrates that with consistent data inputs and
scenario modelling, geopolitical risk can be turned from an
abstract worry into a measurable factor that enhances decision
quality.
Integrating geopolitics into the model
Investors don’t need to become political scientists. They do,
however, need to adjust their frameworks: run scenario tests
and model the impact of trade disruption, sanctions or regulatory
tightening on rent and liquidity; apply political risk
premia – modest yield spreads can reflect
jurisdictional uncertainty without distorting pricing; adjust for
liquidity longer hold periods and potential exit discounts should
be embedded for riskier markets; diversify by regime type,
not just geography – exposure across different political
systems reduces correlated shocks; track early indicators,
monitor changes in FDI screening, energy security
policy, and trade alignment as forward signals of
repricing.
The goal isn’t to forecast every event but to make portfolios
more adaptive to them.
The bottom line
Geopolitics has moved from the outskirts of people’s thought
processes to the mainstream of global investing. For commercial
real estate players, treating it as a footnote is no longer
viable. The same forces that are redrawing trade routes and
regulatory borders are quietly reshaping the yield curve and
liquidity profile of real assets.
Those who integrate geopolitical awareness into pricing and risk
frameworks are not being alarmist. They are being realistic. In a
world where uncertainty is structural, the best investment model
is the one that finally stops treating geopolitics as “the
missing variable.”
