Rising bond yields weigh on European commercial property market

At the same time, the renegotiation of previously agreed transactions is becoming increasingly common, with purchase prices being reduced by more than 10% in some cases, according to investors, banking executives and market participants cited by Reuters.

The rise in government bond yields to multi-year highs, both in Europe and internationally, has significantly increased financing costs. This development is having a particularly pronounced impact on the commercial real estate sector, which is highly sensitive to changes in interest rates and lending conditions.

The slowdown is clearly reflected in transaction activity. According to MSCI data cited by Reuters, the volume of commercial property transactions in Europe reached €43 billion in the third quarter of 2026, marking the lowest quarterly level in the past three years. Over the first nine months of the year, transactions declined by 3% compared with the corresponding period in 2025, while office property sales fell to their lowest level since the 2009 financial crisis.

Major Property Groups Put Investment Plans on Hold

The deterioration in financing conditions is beginning to have a direct impact on the strategies of major European investors and property owners.

DWS, Deutsche Bank’s asset management arm, has temporarily restricted redemptions in a real estate investment fund. Meanwhile, Vonovia, Germany’s largest residential property owner, has warned that higher interest rates are weighing on transaction activity and announced that it will reassess its activities in the development of new properties.

A similar situation is unfolding in the UK, where property groups Land Securities and British Land have suspended development projects in London with a combined value exceeding £1 billion (approximately $1.3 billion). These decisions reflect increased financing requirements and the growing difficulty of securing satisfactory returns under current market conditions.

Transaction Renegotiations and Property Valuation Adjustments

At the same time, there is a growing trend towards renegotiating agreed purchase prices before property transactions are formally completed, as buyers seek to adjust their offers to reflect higher financing costs.

According to executives at British investment management company M&G, these adjustments typically result in price reductions of between 2% and 3%. However, discounts exceed 10% in certain cases, according to an executive at another UK property development company who spoke to Reuters on condition of anonymity.

This trend suggests that higher bond yields and increased borrowing costs are affecting not only the feasibility of new investments but also the valuations of existing real estate assets.

Blackstone: Slower Growth in Investment Portfolios

The impact of higher interest rates has also been confirmed by Blackstone, the world’s largest investor in commercial real estate. When announcing its third-quarter financial results, the group stated that increased financing costs had slowed the growth of its investment portfolios in both Europe and the US multifamily rental housing market.

Despite the current slowdown, Blackstone expects the market to recover gradually over the longer term.

The current outlook for the European commercial real estate market highlights the impact of elevated financing costs on the strategies of major investors. The suspension of new developments, the reassessment of investment plans and the renegotiation of transactions are increasingly becoming defining features of the market.

At the same time, declining property valuations could create investment opportunities for investors with strong liquidity positions and a long-term investment horizon.