US bank funding turmoil drags down CRE outlook

The recent turmoil in US bank funding will likely feed into tighter lending standards to commercial property, dampening the outlook for capital values even further than we had expected. We now expect all property capital values to fall by 10% in 2023 and 5% in 2024.

What you will learn:

• US commercial property prices are sensitive to changes in bank lending conditions. So the ongoing market correction combined with the importance of regional banks in real estate financing and the role of leveraged non-bank lenders are grounds for a more downbeat baseline forecast.
• We think refinancing risk is greatest for offices and retail. The combination of poor capital performance over the past few years and the likely lowering of loan-to-value requirements in the next few quarters will hit transactions and could lead to forced sales.