Commercial property prices predicted to slump by up to 60%

Commercial property prices predicted to slump by up to 60%


The investment bank, Close Brothers, has stated that UK banks could lose up to £70 billion on commercial property loans, as values continue to plummet.

Since the commercial property market peak of 2007, values have fallen by 31.5% according to figures from property analyst IPD. Now Close Brothers has predicted that prices could be down by almost 60% by the end of 2009.


This spells trouble for British banks as during the commercial property bubble of 2007, banks lent up to 95% of a property’s value to private investors and now have a total of £250 billion exposure to commercial property loans.


The huge exposure is over twice the amount that banks had going into the last recession in the early nineties.


Speaking of the expected drop in commercial property prices, Close Brothers stated: “The fall is higher than most observers estimate. No available debt finance and a limited number of investors with equity capital for acquisitions means that anything sold will only realise distressed valuations.


“Commercial property is a major issue facing the banks during the next couple of years. We believe the scale of the problem has not been built into the recapitalisation programme developed by the UK Government.”

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