2023-06-03 16:37:45
A new “wave of pain” for property owners in Europe: prices fell amid bank caution
With rising borrowing costs and falling valuations wiping out $148 billion in shareholder value, European landlords are bracing for a new wave of pain.
A Bloomberg report explains that real estate companies own about $165 billion in bonds due until 2026, while banks are reducing their exposure to the sector and credit costs. This has left some companies at risk of being downgraded to junk, which has made borrowing more expensive for them.
Headwinds include a collapse in office values from the City of London to Berlin, making real estate the least popular industry among fund managers for the third consecutive month, according to a survey by Bank of America Corp. With debt ballooning, many property owners will have to resort to asset sales and cut dividend payments in an effort to straighten out companies for a more turbulent future.
The peak-to-trough sell-off since August 2021 has left the Stoxx 600 Real Estate Index at a record low compared to the European benchmark stock index.
The broader turmoil has cost British Land Plc its place in the FTSE 100 after more than two decades while the owner of London’s Canary Wharf financial district has been downgraded to junk.
The price of major office buildings in Paris, Berlin and Amsterdam has fallen by more than 30% in 12 months, according to brokerage Savills Plc.
This is part of a global trend that has seen the volume of mortgage and non-performing loans exceed $190 billion. And there may be worse in the future. “Commercial real estate values in Europe could drop by as much as 40% due to the upturn in debt markets,” Arun Jay, an analyst at Citigroup, wrote in a note earlier this month.
In addition, Aaron Jay opined that “owners may have to provide around 50% additional equity when refinancing an asset in order to meet the standards that banks and private credit funds are lending to. It depends on a refinancing rate of 6%.”
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