Falling commercial property prices threaten UK banks

Falling commercial real estate prices after the UK’s vote to leave the EU pose a threat to bank stability because of the market’s reliance on foreign capital, Bank of England said.

Values have declined 2.6 per cent since the referendum and may drop further from their current high levels, according to the central bank’s twice-yearly assessment.

Continuing declines would affect companies’ access to finance because many use commercial real estate as collateral.

A decline in UK commercial-property values will accelerate next year, with parts of central London seeing a much sharper drop than the average of 10 per cent to 15 per cent, Deutsche Bank’s asset-management unit said in a report in September.

Pay hikes will mean spending cuts, warns fiscal watchdog

---

Rushed changes to finance sector could harm EU, says Bank of England

---

European Investment Bank funds to help offset Brexit impact

---

Paul Krugman: How bad can it get under Trump? Really bad

---

Simon Wallace, head of alternative asset research at the unit, said the fall could reach 30 per cent.

Transactions

The value of UK commercial property transactions in the third quarter was 27 per cent lower than the previous year, the Bank of England report said.

There is now less liquidity in riskier parts of the market, including new developments, the Bank of England said, citing industry contacts.

While some segments of the market are stabilising, prices of prime London offices are elevated compared to rents, posing a greater risk of correction.

Overseas investment, which has accounted for around half of UK commercial real estate transactions since 2012, has fallen sharply in 2016, the Bank of England said.

While a decline in the value of the pound against the dollar may attract some foreign investors, the volatility in the exchange rate may deter others and dampen demand for the properties, the report said.

– Bloomberg