Commercial property - another market on the slide

Perhaps we are spending too much time thinking about the forthcoming collapse of residential property prices. Maybe, we should take a closer look at the commercial property market.

Recent data has been rather depressing. Take this recent story from Property Week:

"Bad debts from loans to non-listed commercial and residential developers could increase as much as 50% this year as property markets continue to struggle, according to property consultants EC Harris.

Although credit concerns have focused mostly on residential property lending, there are growing fears of losses from commercial real estate lending as well EC Harris told the Financial Times.

Total returns on the Investment Property Databank monthly index for November fell by a massive 3.6%, the worst monthly return on record. For the year to November, total returns registered a drop of 7.8%. Meanwhile, UK bank lending to commercial property represents roughly 11% of all lending, equal to the proportion in 1989, just before the last crash."

Total returns in November drop 3.6 percent? Bad debts predicted to surge 50 percent.

The last number is undoubtedly the most worrying. The UK banking sector is rather exposed to the commercial property sector. With residential property prices already on the slide, the UK banking sector could be facing the proverbial double whammy.