Bank funding turmoil drags down U.S. CRE outlook

The recent turmoil in U.S. bank funding will likely feed into tighter lending standards to commercial property, dampening the outlook for capital values even further than expected, according to Oxford Economics.

These U.S. banks with assets less than $250 billion supply around 80 percent of commercial real estate (CRE) loans. The impact could stem either directly from reduced bank credit supply or indirectly via a decline in bank financing for non-bank lenders, which also play a crucial role. But the recent rise in high-yield credit spreads — which correlate strongly with bank credit conditions — point to a sharp tightening (Chart 1) and weaker outlook for property even if spreads narrow from here as expected.

Although liquidity measures are being rolled out quickly