Banks exposed by commercial property slump

Britain’s banks risk losing £7 billion from the falling value of the country’s office, shop and industrial buildings stock over the next two years and write-offs could balloon to £18 billion if the economy slides into recession.

James Rossiter, Property Correspondent. The Times - March 21, 2008

The forecast from Capital Economics comes as investors and lenders to Britain’s £450 billion of commercial property are reeling from an average fall of 15 per cent in the value of buildings since last June, according to industry figures.

However, Capital Economics believes that prices may fall by the same amount again by the end of next year, bringing the total decline to 30 per cent from their peak. Capital believes that there is a one-in-five chance of a recession, which could trigger 40 per cent falls in average prices.

The bearish forecasts were given added weight this week by a profits warning from DTZ, one of the world’s largest commercial property agencies. DTZ is concerned that a recent pick-up in building sales has petered out and that rental demand for new space, which had remained strong, is on the verge of collapsing - full article