Commercial real estate investors ready for risk of loss in post-COVID world

Analysts, academics and investors Reuters spoke to warn that things could be different.

With remote working becoming routine for many office companies and consumers' online shopping habits, cities such as London, Los Angeles and New York are overflowing with buildings that locals no longer want or need.

This means it could take much longer for the value of skyscrapers in city centers and huge shopping malls to recover. And if tenants can't be found, owners and lenders risk losses more painful than in previous cycles.

"Employers are starting to realize that big office space is no longer needed," said Richard Murphy, a political economist and professor of the practice of accounting at''Sheffield University in the UK.

"Commercial landlords should be worried. Investors in them are wise to leave now," he added.

Global banks hold about half of the $6 trillion in commercial real estate debt, Moody'\''s Investors Service said in June, with the largest share maturing between 2023 and 2026.

American banks reported rising real estate losses in their half-year figures and warned of the possibility of further losses.

Global lenders to U.S. real estate and office investment trusts, which provided credit risk scores to data provider Credit Benchmark in July, said firms in the sector are now 17.9% more likely to be delinquent''debt payments than they estimated six months ago. Borrowers in the UK property ownership and development category were 4% more likely to default.

Jeffrey Sherman, deputy chief investment officer at DoubleLine, an investment house with $92 billion in assets, said some U.S. banks are wary of tying up their valuable liquidity with commercial real estate refinancing in the next two years.

"Deposit withdrawals could happen any day now," he said, pointing to a shift of customer deposits from banks to higher-yielding "risk-free" money markets and government bonds.

"As long as the Federal Reserve keeps interest rates high, it's like a ticking time bomb,"'''He said.

Some global policymakers, however, are confident that a post-pandemic shift in the idea of what it means to 'go to work' will not lead to a crisis like the one in 2008-2009.

Demand for loans from eurozone companies fell to historic lows last quarter, and the U.S.