European property slump deepens as borrowing costs force price cuts

By Iain Withers, Tom Sims and Tommy Reggiori Wilkes

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.

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.

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

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

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

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.

Such re-trades are cutting property prices by 2% to 3%, executives at British investment firm M&G MNG.L 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.

Blackstone BX.N, 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.

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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.

"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 are more resilient," he said.

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