European banks have about 1.4 trillion euros ($1.50 trillion) in loans to the troubled commercial property industry amid a steep fall in office prices on both sides of the Atlantic and investor concerns about lenders' ability to handle the risk, Tom Sims and John O’Donnell reported for Reuters.
Banks in Germany have become a particular focus because the country is experiencing its worst real-estate slump in decades — marked by insolvencies, halted construction, and a freeze in property deals.
Banks in Germany have become a particular focus because the country is experiencing its worst real-estate slump in decades — marked by insolvencies, halted construction, and a freeze in property deals.
Investors dumped the shares of one of Germany's top property financiers last week, concerned about its exposure to the US market.
Fallout from the downturn also has the potential to affect banks in France and the Netherlands, which are among Europe's biggest commercial real estate lenders.
In Germany, Europe's largest economy, commercial property prices dropped 10.2% in 2023, according to the VDP banking association this week. Declines have been similar on average across the euro area, based on data from the European Central Bank.
The real estate sector accounted for roughly a fifth of Germany's output, with low interest rates pulling billions of euros into property. But higher interest rates and rising building costs have tipped some developers into insolvency as bank financing dries up, deals freeze, and prices fall.
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