German Commercial Real Estate Valuations Tumble

German’s top bank watchdog warned that lenders with large exposures to commercial real estate are in store for more pain as valuations for such assets are set to tumble further.

The current troubles of real estate investors and developers mean they will seek to sell more properties, extending the slump in the asset class, Mark Branson, the president of BaFin, said.

Commercial real estate has been one of the assets hit hardest by a rapid increase in interest rates as developers face a surge in borrowing costs as well as shifts in behavior that started in the pandemic. The industry has also seen a drought of deals for over a year now, making it hard to know whether the values banks record in their loan book are accurate.

Branson said that while the developments in commercial real estate won’t spark a crisis, banks with higher exposures to the sector could face more difficulties. He didn’t name any banks or real estate companies.