The majority of commercial property loans in the United Kingdom are currently in default, according to a study by CB Richard Ellis. Approximately £200 billion ($327 billion) is required to refinance existing loans secured against £450 billion of properties over the next five to seven years. Only half of that amount is available, according to a CBRE estimate.
“Almost every senior, and every junior, loan is in technical default,” according to Robin Hubbard, a director of CBRE’s real estate finance group. “There’s limited financing available for new loans or refinancing other people’s loans.”
Investors borrowed £360 billion to buy commercial properties in Britain, using just £90 billion of their own money. As a result, they now owe more than the properties are worth. Because of the global financial crisis, average property values have fallen 44 percent since the middle of 2007, notes Investment Property Databank Ltd. Banks are extending approximately £45 billion of loans maturing this year, though for a brief period only. This only postpones the ultimate defaults.
The major challenge is the leasing market, which “could be the straw that breaks the camel’s back,” Hubbard noted. “Nobody’s going to throw money in to get things back, unless it’s for new, nice, prime kit. There’s only so much magic dust you can sprinkle on the rubbish stuff.”