Banks face post-Brexit property risk

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Falling commercial real estate prices after the U.K.’s vote to leave the European Union pose a threat to bank stability because of the market’s reliance on foreign capital, Bank of England said.

Bloomberg News reports that values have declined 2.6% since the referendum and may drop further from their current high levels, according to the central bank’s twice-yearly assessment. Continuing declines would affect companies’ access to finance because many use commercial real estate as collateral.

A decline in U.K. commercial-property values will accelerate in 2017, with parts of central London seeing a much sharper drop than the average of 10% to 15%, Deutsche Bank’s asset-management unit said in a report in September. Simon Wallace, head of alternative asset research at the unit, said the fall could reach 30%.

The value of U.K. commercial property transactions in the third quarter was 27% lower than the previous year, the BOE report said. There is now less liquidity in riskier parts of the market including new developments, the BOE said, citing industry contacts. While some segments of the market are stabilizing, prices of prime London offices are elevated compared to rents, posing a greater risk of correction.

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Banks at Risk From Post-Brexit Property Turbulence, BOE Says

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