Up to half of all commercial property in London, almost a third in Washington, D.C., and about a quarter in New York could be worth less than what owners originally paid for it. And because human psychology resists taking a loss, the real estate investment market is likely in for a deep freeze, according to a new analysis.

In a note this week, MSCI Real Assets analyzed the average price drop of assets in cities across the world and the amount of time they are typically held to estimate the impact of loss aversion on market liquidity.

London is the worst city in the world in terms of properties sinking below purchase price, with more than 50% in the red, according to the analysis, led by MSCI Head of Research Tom Leahy. It was closely followed by Hong Kong.

Among major U.S. cities, Washington, D.C., had the highest proportion of assets that could be in the red at 30%, followed by New York and San Francisco. Boston and Los Angeles were in the best position, according to the analysis.

The fact that assets are worth less than their purchase prices has significant implications for the market, Leahy said.

Studies undertaken by behavioural psychologists have repeatedly found that humans are deeply loss-averse. In commercial real estate terms, owners tend to sell winners but hold onto losers, unwilling to take a loss on a prior investment even if the price might go down further.

This unwillingness to accept loss is contributing to the freezing of global investment markets, Leahy said. Markets with the highest proportion of assets likely in the red have seen the biggest drops in liquidity, per his analysis.

The aversion to loss is creating a large gap between the price at which owners are willing to sell and what investors are willing to pay, with owners tending to anchor their sales price to the price they paid for an asset.

The biggest gap between buyers and sellers is in San Francisco, Leahy said, where it is close to 40%. In London, the gap is about 20%.

Leahy said that "investors should consider that the loss-aversion trend may ensure that the current period of low liquidity persists."