Rising borrowing costs have kept the European real estate sector under tremendous pressure, with the already struggling property market now facing expensive debt refinancing, forcing investors to renegotiate property deals at discounts of more than 10%, according to investors, bankers, and industry executives.
Government bond yields have climbed to multi-year highs across Europe and other major markets due to headwinds like growing fiscal deficits, heavy debt issuance, sticky inflation, and political uncertainty, thereby pushing up financing costs for borrowers and weighing on the interest-rate-sensitive real estate sector.
European commercial property sales totalled 43 billion euro (USD 48 billion) in the third quarter, their lowest quarterly level in three years, according to MSCI data released on Thursday.
“Transaction volumes were down 3% year to date compared with an already weak 2025, while office sales fell to their lowest level since the 2009 financial crisis,” the MSCI data stated further.
The downturn is affecting some of Europe’s biggest property investors and developers.
DWS, the asset management arm of Deutsche Bank, temporarily restricted redemptions from one of its property funds this week.
Germany’s largest landlord, Vonovia, said higher interest rates were weighing on property transactions and that it would review its development business.
In Britain, property groups Land Securities and British Land have paused London development projects worth more than one billion pounds (USD 1.3 billion).
Against the backdrop, investors are reportedly increasingly renegotiating property transactions before completion, seeking lower prices to account for higher borrowing costs and changing market conditions.
The practice, known as “re-trading,” has become more common as buyers reassess valuations and financing requirements.
Executives at British investment firm M&G told reporters in September that such negotiations were reducing property prices by 2% to 3%.
However, discounts can exceed 10%, according to an executive at another British developer, who spoke with Reuters.
Blackstone, the world’s largest commercial real estate investor, said in its third-quarter results that higher interest rates had slowed asset growth in Europe and the US multifamily housing market.
The company, however, expects conditions to recover over time.
Higher borrowing costs, driven by the Middle East conflict and inflation concerns, have made refinancing pricier and encouraged lenders to take a more cautious approach to leverage.
Debt advisers at property agencies CBRE and JLL said financing remained available for most assets, although borrowers were facing tighter conditions.
Chris Gow, head of debt and structured finance in Europe at CBRE, said lenders and borrowers had become more resilient after years of market disruptions.
“For six years, it feels like we’ve had a so-called ‘Black Swan’ event every single year,” Gow said.