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 â€“ 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 â€“ 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 â€“ 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.”