Commercial Property Prices Pose Risk for Banks and Bond Investors

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…