Commercial Property Prices Pose Risk for Banks and Bond Investors

Commercial Property Prices

Commercial property prices have nosedived in 2020 as people stopped going to offices and retail businesses. According to a recent report, it could lead to bank losses.

Commercial property loan losses were "heavy" in previous downturns, said Oxford Economics' Adam Slater in a report. Additionally, there are worrying signs that this trend could repeat during the coronavirus-induced slowdown, he added.

Slater said the loan losses would "materially erode" bank capital in a worst-case scenario.

"Large (commercial real estate) price declines generally translate into big losses for banks," Slater said. "Write-offs of (commercial real estate) loans made a big contribution to overall bank losses in the last two major downturns.

For example, during the 2008 economic recession, these lo...

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