European property slump deepens as higher 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.

European commercial property sales 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 were the lowest since the 2009 financial crisis.

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

Deutsche Bank's asset manager 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 London, Land Securities and British Land this month paused two big redevelopment projects.

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 said.

Re-trades are cutting prices by 2% to 3%, executives at British investor 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.

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

Higher rates, driven by the Middle East conflict and inflation concerns, have made refinancing costlier and lenders more cautious on leverage, although finance remains readily available, 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, CBRE's head of debt and structured finance in Europe. "Lenders and borrowers are more resilient," he said.

SOUTH LONDON PROJECTS STALLED

Land Securities said it had shelved the £1.5 billion ($2.0 billion) redevelopment of Lewisham shopping centre in south London due to higher rates, construction costs and local authority demands for more affordable housing.

"It's just a much more challenging environment today to invest a huge amount of money in (development)," Land Securities' Ross Sayers told a London event this week, without referencing Lewisham.

British Land paused the second phase of its nearby £4 billion Canada Water redevelopment due to economic conditions but remains committed long term, a person familiar with the matter said.

Architects and engineers attending the Vertical Urbanism Summit in London this week — an event moved from Riyadh due to safety concerns — told Reuters work in the Middle East, previously a lucrative revenue source, had slowed since the regional conflict. Others said the pipeline of work remained robust.

Wider cost pressures necessitate building more efficiently and involving contractors earlier in design, delegates added.

"We have to build in a value management ... to a degree that we haven't before, because the costs are escalating so quickly," said Scott Duncan, partner at SOM, which designed Dubai's Burj Khalifa.

($1 = 0.8971 euros)

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