The bank's analysts predicted that prices for UK commercial real estate will decline between 15 and 20 per cent between June of this year and the end of 2024 for several listed property businesses, including Hammerson and British Land.
The bank's warning adds to growing concern that a devastating price fall in UK commercial property is imminent. Both homeowners seeking mortgages and operators of workplaces, stores, and warehouses have seen expenses rise as a result of rising interest rates.
The five-year swap rate that commercial property borrowers use has surged beyond 5% from under 1% a year ago. This means that higher debt levels can cause businesses to cut back on employment and investment more in the face of economic shocks. This can have a negative impact on people’s jobs and incomes. Additionally, banks can also take losses if businesses struggle to pay back their loans and reduce their lending as a result.
Meanwhile, the investment funds also take action to reduce their portfolio associated with commercial properties. Columbia Threadneedle, one of the largest institutional investors in UK real estate, froze trading in its £453 million UK property fund due to a spike in redemption requests.
Similarly, pension funds began to lower their real estate assets even before the “mini” budget was announced…
Shell's pension fund recently put its portfolio of UK properties, valued at about £600 million, up for sale, albeit the corporation said this was not in response to the budget but rather "part of our long-term goal to lower the investment risk".
Large portfolio property owners are frustrated by the budget's consequences, which arrived at a time when the market was already beginning to show symptoms of turning after the low-interest bull run since 2011.