Bankers Close Brothers has said commercial property prices will fall by almost 60 per cent on earlier gains.
One worry is that banks will lose money they agreed for commercial property loans, having allowed potential buyers to borrow up to 95 per cent of a property’s value.
“Commercial property is a major issue facing the banks during the next couple of years,” the bank said.
It also raised concerns the government had not prepared for such a significant down turn: “We believe the scale of the problem has not been built into the recapitalisation programme developed by the UK government.”
Should the value of commercial property continue to fall, some owners will be in negative equity owing more than their building is worth.
The upside is that cheaper property prices are likely to attract a new breed of investor, keen to buy a stake in London’s vibrant location.