Following the back-to-back implosions of Silicon Valley Bank (SVB) and Signature Bank, as well as the hastily arranged rescue of Credit Suisse by rival bank UBS, cracks in Europe’s real estate are beginning to show. Market fundamentals resulting from pandemic-induced hybrid work trends have already put pressure on commercial property owners as occupiers are downsizing their current office needs. Plus, property owners have also had to contend with a high spike in borrowing costs as central banks raise interest rates to rein in a quick rise in inflation. But the recent collapse of several high-profile banks has increased concerns that loans will become more expensive, if not more difficult to obtain in the first place.
Even though commercial real estate lending doesn’t take up as much space on Europe’s loan book as it does in the U.S. (CRE debt in Europe clocks in at 9 percent, while American CRE debt accounts for 25 percent of America’s loan book), European real estate executives will still find themselves in a tight spot as banks are becoming less tolerant of risk due to the crisis in the financial industry. Analysts are speculating that some assets, if not some businesses, will need a fresh infusion of equity to lessen the leverage in their capital structures. In more extreme cases, people could need to sell their property to pay off debt. The main worry is a wave of forced sales from debt funds or overextended asset owners, which would further lower asset values and start a downward trend.