European property slump deepens as borrowing costs force price cuts

European Commercial Property Hit Hard by Rising Borrowing Costs and Price Cuts

Impact of Rising Borrowing Costs on Europe's Commercial Property Sector

By Iain Withers, Tom Sims and Tommy Reggiori Wilkes

Pressure from Surging Government Bond Yields

LONDON/FRANKFURT, Oct 29 (Reuters) - Rising borrowing costs are piling pressure on Europe's struggling commercial property sector, making it tougher to refinance debt and forcing some investors to renegotiate deals at discounts of 10% or more, investors, bankers and agents said.

Government bond yields have surged to multi-year highs across Europe and globally, pushing up financing costs for borrowers, including in the interest-rate sensitive property sector.

Declining Commercial Property Sales and Market Performance

Commercial property sale volumes in Europe fell to €43 billion ($48 billion) in the third quarter, the lowest quarterly total in three years, MSCI data showed on Thursday. Volumes were down 3% year to date from an already sluggish 2025, while office sales dropped to their lowest since the 2009 financial crisis.

The downturn has hit some of Europe's largest property investors.

Major Players Respond to Market Downturn

Deutsche Bank's asset management arm DWS this week temporarily restricted redemptions from a property fund, while Germany's largest landlord Vonovia said higher rates were hurting transactions and it would review its developments business.

In Britain, Land Securities and British Land have paused development projects in London worth more than £1 billion ($1.3 billion).

Renegotiations and Price Reductions in Property Deals

Property sales are increasingly being "re-traded" — industry jargon for renegotiating a lower price before a deal closes — to reflect higher borrowing costs, three investors told Reuters.

Extent of Price Cuts

Such re-trades are cutting property prices by 2% to 3%, executives at British investment firm M&G told reporters last month, although the discounts can exceed 10%, according to an executive at a separate British developer, who declined to be named citing commercial sensitivities.

Global Investors' Perspectives

Blackstone, the world's largest commercial real estate investor, said with its third-quarter results that higher rates had slowed asset growth in Europe and in the US multifamily housing market, although it expects a recovery over time.

Challenges in Refinancing and Lending Environment

Higher rates, driven by the Middle East conflict and inflation concerns, have made refinancings more expensive and prompted lenders to take a more cautious approach on leverage, although finance remains readily available for most assets, debt advisers at property agencies CBRE and JLL said.

Industry Resilience Amid Ongoing Challenges

"For six years, it feels like we've had a so-called 'Black Swan' event every single year," said Chris Gow, head of debt and structured finance in Europe for property agency CBRE.

Lenders and Borrowers Adapt

"Lenders and borrowers are more resilient," he said.

($1 = 0.7503 pounds)

($1 = 0.8971 euros)

(Reporting by Iain Withers, Tom Sims and Tommy Reggiori Wilkes. Editing by Mark Potter)