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Fewer commercial properties will change hands and property values will plunge in Europe and the U.K. as investors enter a “new paradigm” of rising interest rates and a global economy in turmoil, Brad Hyler, who manages $52 billion in property in Britain and Europe for private equity firm Brookfield Asset Management, said in a Financial Times interview.
“The change of pace and the shift in sentiment from reasonably positive to negative across the board has been a big adjustment,” he said.
“Banks have gotten more selective, more risk-averse” in making loans on commercial properties, he added. “We’re expecting transaction volume to decelerate pretty significantly—it already has.”
A market will remain for “higher quality assets” but less desirable properties such as office towers and shopping malls face a dark future, with less demand for space as inflation and rising interest rates add to landlords’ costs.
The dire scenario will become visible when owners need to refinance mortgages, Hyler said.
Today’s higher interest rates and lower demand have lessened office properties’ values and owners may well find that the interest rate on their new loans could exceed their rate of return from their buildings, he warned.
Share prices for the U.K.’s largest publicly-traded office landlords sank last week after Bank of America predicted that the value of office properties will slump 12 percent by 2024 and rents will not increase between now and then.
About €2 billion was erased from the office property sector’s market capitalization last week.
Property prices might have further to fall but are unlikely to repeat 2008’s disaster, when prices crashed for commercial real estate of all kinds, Hyler said.
PUBLISHER’S NOTE: We correctly forecasted this “new paradigm” as the COVID War began more than two years ago: a significant amount of commercial real estate—particularly office buildings—has lost so much value that its owners will never be able to recoup their investments.
TREND FORECAST: Many small operators will be forced to sell their commercial properties to larger concerns and leave the industry.
Thus will begin another cycle of property and wealth consolidating up the investment ladder, with well-financed small operators becoming larger and the Bigs becoming even bigger.