The Bank
of England has warned that the UK commercial property market remains
“vulnerable to repricing” in its financial stability report this morning.
The
report stated that commercial property rental yields were low by historic
standards, which would normally reflect expectations for strong levels of
rental growth. However, it warned that low interest rates imply the growth
expectations were weak.
“Some asset valuations, particularly for some corporate bonds and UK commercial
real estate assets, appear to factor in a low level of long-term market
interest rates but do not appear to be consistent with the pessimistic and
uncertain outlook embodied in those rates,” it said.
The
report also warned that prices in some parts of the commercial property market
appear more stretched than others, for example, West End office prices were
“well above the range of estimated sustainable valuation levels.”