Commercial property prices should stabilise in 2010, the Bank of England has said.
In its quarterly bulletin it predicted continued price falls in the near future but improved results by mid-2010.
“Market contacts attributed this renewed weakness in the commercial property sector to concerns about the UK economy, and weakening tenant demand,” the Bank noted.
It revealed financing for new transactions was difficult and the market remained vulnerable.
Commenting on the increased amount of rating downgrades of UK commercial mortgage-backed securities (CMBS) it revealed its contacts suggested investors have become more cautious.
They “continued to reduce risk and balance sheet size by seeking to sell CMBS assets to other investors”, it reported.
Investors have struggled to obtain mortgages from banks, which are now keen to hold onto deposited cash and are finding it hard to source their own credit.
The Bank noted lenders have sought to “constrain the growth in the size of their balance sheets and closely monitored internal limits on lending to other banks”.