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Man Group analysts sound warning on commercial property

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Man Group said in a note this week that commercial real estate could be the next sector to come under pressure following the recent banking crisis, noting small and medium US lenders – which are under closer scrutiny following Silicon Valley Bank’s collapse – account for the bulk of commercial property loans.

In the latest ‘View From The Floor’ market commentary, analysts at the London-listed global hedge fund giant pinpointed two main reasons for commercial real estate potentially being the next domino to fall.

“First, small- and medium-sized banks – that make up the bulk of US lenders – account for 70% of all commercial real estate loans,” Man observed. “The collapse of SVB has forced these banks in particular to have a renewed focus on liquidity, inevitably resulting in a tightening in lending conditions.”

Secondly, vacancy rates remain elevated since the Covid-19 pandemic. As working from home gained popularity, commercial tenants cut back on office space.

“A lack of demand could result in falling rents and thus lower commercial prices – which could further exacerbate problems if banks’ loan-to-value ratios balloon,” analysts observed.

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