The commercial property markets of the US and the UK are expected to face a variety of challenges in the near future, reported the Khaleej Times.
According to Matein Khalid, a global equities strategist and fund manager, major office markets in the US will be negatively affected, given the anticipated rise in inflation and the US Federal Reserve set to increase the cost of borrowing money.
“The eight-year bull market, which has seen the prices of office buildings in prime markets (Manhattan, Boston, San Fran etc.) double, will end with a vengeance as interest rates and inflation surge in 2017 to 2018.”
The expert noted that vacancy levels in the US are inching upwards, while sales growth is becoming weaker. The defaults on commercial mortgage backed securities (CMBS) have also risen to at least 10 percent in 2016.
“At least US$250 billion of CMBS principal comes due in 2017-18, the legacy of credit bubble era loans in 2006-07. This is a double whammy for landlords and lenders, many of whom are handcuffed by Dodd Frank risk retention rules.”
Meanwhile, London’s commercial real estate sector, primarily in the city centre, may experience a Brexit shock from the expected exodus of bankers from the UK to Eurozone cities like Dublin, Paris and Berlin.
Also, the UK government can’t count on Chinese buyers to support the prices of properties in prime London, as Beijing clamps down on capital outflow.
Furthermore, the expert highlighted that London home prices are overvalued, predicting that condo prices in off plan developments, like those in Nine Elms and Battersea, could suffer a slump in prices of 50 to 70 percent if buyers default en masse.