![]() The property group Savills, which reported a drop in annual profits this month, expects the sector to bounce back next year amid a lack of office development supply and a move towards sustainable buildings.Ĭommercial property prices in the UK could fall by a further 10% this year amid a “downward demand spiral”, Nuwan Goonetilleke, the head of shareholder assets at the savings and pensions group Phoenix Group, says. ![]() ![]() This could deepen the property downturn, and mean the recovery in UK commercial investment – which dipped by £1bn to £61bn in 2022 – will be slower than anticipated. Photograph: Alicia Canter/The Guardianīecause of rising interest rates, some owners of offices, shops and warehouses may be unable to refinance when existing loans mature, and could be forced to sell assets. Interest rate rises have fuelled fears about the outlook for the commercial property market. The Bank of England in the City of London. “That said, credit conditions are also set to tighten in the UK which will make refinancing more of a challenge, particularly for offices where capital values have fallen by 15% since 2018, against an 11% fall for all property,” Pointon says. As yet there have been no UK bank failures, and lenders’ exposure to real estate debt is relatively low at 6% of all debt, compared with more than 12% in the run-up to the 2008 financial crisis, he notes. The banking system in Britain is very different to the US, where a large share of property loans are advanced by small regional banks. “The UK commercial real estate (CRE) debt market seems to be in a better position than the US, where troubled regional banks were the main providers of finance,” Matthew Pointon, a senior property economist at Capital Economics, says. Goldman Sachs said in an analysts’ note earlier this month: “The recent stress in the banking sector has fuelled growing concern about spillover effects on the commercial real estate industry.” Several property funds, including the Blackstone Real Estate Income Trust, have been forced to limit withdrawals in recent months as investors head for the exit.
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