Bank of England warns of repricing danger in commercial property

28th June 2017

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.”