European Banks' Office Loans: More Price Declines are Likely as Office Vacancy Rates Remain High

Morningstar DBRS has released a commentary on office loan exposures at European banks. Key highlights include:

-- Exposure to office loans is generally contained for large European banks; however German banks showed higher concentration, particularly CRE specialised lenders
-- Vacancy rates are at their highest level since Q3 2015, but more firms are requiring employee in person attendance
-- Further downward revision of office values is likely, especially for lower-quality assets

"In our view, a further downward revision of office values and prices is likely, especially for lower-quality, dated, poorly located and less energy-efficient buildings, which are in need of investment in refurbishment or reconversion." said Nicola De Caro, Senior Vice President from the Morningstar DBRS Global Financial Institutions team. "As result, banks will likely experience further upward pressure on LTVs leading to higher loan loss provisions."