The European commercial property market is facing a drastic reversal, with investors scrambling to find ways to bridge financing gaps as lending markets seize up from rapidly rising interest rates. Turmoil at trophy properties in London and Frankfurt offers a glimpse into the damage this reversal may cause. Lets take a closer look at whats happening in the European commercial property market right now.
The Commerzbank Tower Sale
One of the most visible examples of this abrupt market shift is the strained sale of Germany’s iconic Commerzbank Tower, located in Frankfurt’s financial district. Usually, such trophy properties which are generally considered low-risk investments attract considerable investor interest from around the world. However, due to the pandemic-driven uncertainty in the global economy, potential buyers have been hesitant to commit to large purchases like this one. As a result, only two bidders remain for what was once touted as “Germany’s most attractive investment opportunity.”
The City of London Refinancing Process
Another example of Europe’s commercial property market difficulty can be seen in London’s City area where one of its largest office buildings, 20 Fenchurch Street, is going through an arduous refinancing process. The building was purchased by China Investment Corporation (CIC) back in 2019 for £1.3 billion but now CIC is struggling to refinance its loan given that lenders across Europe are tightening their purse strings due to economic uncertainty brought on by Covid-19 and Brexit. This is particularly concerning since 20 Fenchurch Street was reportedly purchased using funds borrowed against other CIC properties.
These two examples offer a glimpse into what could happen elsewhere across Europe if commercial property investors aren’t able to adjust quickly enough and find ways to bridge financing gaps caused by rapidly rising interest rates and economic uncertainty stemming from Covid-19 and Brexit. It remains to be seen how much damage will be done before Europe’s commercial property market can recover from this sudden reversal. However, it is sure to be an interesting story as more details emerge about how these investors manage their assets during this tumultuous period for Europe’s economy.