Economists warn that office landlords in Europe are going to face a cash crunch of £34bn as more staff work from home.
According to S&P Global, the commercial real estate industry in Europe will face a funding shortage between 2023-2026 due to high interest rates and the decline in office values following pandemic.
Analysts predict that office landlords are likely to receive £34bn from banks less over the next three years compared with the amount they received between 2018 and 2020.
The banks have cut the amount of money they will lend to landlords due to falling valuations, and increased borrowing costs.
Paul Watters is the head of European Corporate Research at S&P. He said that the shift towards homeworking had driven up the vacancy rates in European city centers and “clearly” been a problem in the City.
S&P forecasts a 11pc decline in Europe’s office value from the second half 2022 until the end 2024. The current drop is 5.8pc.
Mr Watters warned that if landlords were forced to sell, the value of their properties could plummet further. You risk witnessing a chaotic sale. The lack of liquidity on the market could cause valuations to be thrown off balance.
S&P warns that falling commercial real estate values could expose banks to loss.
Analysts added thatLenders in Germany, the Netherlands, and the Nordics are at risk due to their significant commercial real estate loan portfolios.or European countries including the UK and France in the four-year period to 2021.
The biggest impact on the economy will be felt between 2025 and 2026, as more loans reach maturity.
Mr Watters stated that there will be a funding gap of £80bn in the commercial real estate sector, with £34bn in the office and retail sectors.
S&P also said that the media and entertainment sector, consumer goods, and commercial real estate will be affected.
S&P predicts that the default rate for corporates in Europe will rise from 2.9pc up to 3.75pc.
The default rate will reach its highest level since March 2021, when it peaked at 6.15pc.
The previous record high, excluding the pandemic phase, was 5,7pc in late June 2010, after the financial crises.