Europe’s Property Debt Gets Costlier Again

Borrowing costs are rising again across parts of Europe’s real estate market. German residential platform Net Zero Properties postponed a €500 million bond sale in September even after offering investors a 6% yield, while hybrid securities issued by Aroundtown and CPI Property Group weakened. The market is not yet repeating the 2023 property shock: major landlords have accumulated liquidity and pushed maturities further out. The ECB’s latest rate increase, however, is changing refinancing conditions just as European property companies prepare to replace tens of billions of euros of existing bonds.

Riskier European property bonds come under pressure

Bloomberg reported on September 20 that stress was reappearing in Europe’s higher-risk property debt market, with hybrid securities issued by Aroundtown and CPI Property Group falling sharply during the month and Net Zero Properties abandoning a planned €500 million borrowing. High-yield debt is issued by borrowers rated below investment grade and generally carries a larger risk premium.

Hybrid bonds are particularly sensitive to changes in credit sentiment. They are generally subordinated to senior debt, often have no fixed final maturity and give issuers call options on specified dates. When funding markets are favorable, companies can refinance those securities with new hybrids. When yields rise, replacing them becomes more expensive.

That mechanism was an important part of the pressure that hit European property companies during the 2022–2023 tightening cycle. Property valuations declined just as companies began confronting the prospect of replacing cheap legacy debt with much more expensive financing.

Net Zero Properties postponed a €500 million issue

Net Zero Properties planned to sell senior unsecured green notes due September 23, 2030. The original transaction was sized at €550 million before being reduced to €500 million. Initial yield guidance was around 5.75%, but final terms moved to 6%, with an issue price of approximately 97.4% of face value.

Fitch was expected to assign the notes a BB+ rating with a positive outlook, placing the planned issue one notch below investment grade on the agency’s scale.

Orders exceeded €500 million, yet the transaction was postponed on September 9. CreditFlow reported that the issuer cited adverse market conditions. The proceeds were expected to help fund roughly €300 million of acquisition financing related to the Sapphire portfolio, repay €172 million of junior debt and cover capital expenditure and transaction costs.

The combination of a covered order book and a cancelled transaction is significant. Investors were present, but the bond still did not proceed. For lower-rated borrowers, the central question is increasingly not whether capital exists, but whether it is available at a price that makes economic sense.

Net Zero is expanding its German housing portfolio

The financing attempt comes as Net Zero expands rapidly. Its owner, ZAGA Capital Partners, signed an agreement in early September to acquire about 5,600 apartments with 333,000 square meters of lettable area across Schleswig-Holstein and Lower Saxony.

If completed on the announced terms, the acquisition would take Net Zero’s German portfolio above 21,000 residential units and lift pro-forma annual net rental income above €105 million. Closing was expected in September and remained subject to customary conditions.

Rapid portfolio expansion increases the need for capital. When debt markets are stable, acquisitions can be partly financed through bond issuance. A higher required yield increases interest expense throughout the life of that financing.

Aroundtown has reduced near-term refinancing pressure

Weakness in some Aroundtown hybrids does not mean the company has lost access to capital. Its first-half financial figures show that it has continued to refinance and repay debt.

Net rental income was €591 million in the first six months of 2026, while adjusted EBITDA was €500 million. Aroundtown had raised roughly €1.6 billion of financing year-to-date and repaid about €2.3 billion of bonds. During the first half alone, it issued around €550 million of new bonds and repaid approximately €475 million.

After June, the company issued about €1 billion of senior unsecured notes and repaid roughly €1.8 billion of bonds. Those transactions increased average debt maturity to 3.9 years, or 4.7 years when cash and liquid assets are taken into account. Aroundtown also refinanced its nearest perpetual call dates, including a €750 million perpetual issued in January at a 5.125% coupon and a €600 million Grand City Properties perpetual issued in May at 5.25%.

Leverage has nevertheless moved higher. Loan-to-value rose to 43% at the end of June from 41% in December 2025, while higher finance costs continued to weigh on earnings.

CPI Property Group holds €1.6 billion of liquidity

CPI Property Group also entered the latest period of higher rates with a substantial liquidity reserve. Its property portfolio was valued at €17.5 billion at the end of June and total assets stood at €19.9 billion. Consolidated leverage remained at 49.3%, while annualised net debt to EBITDA was 12.7 times.

Gross debt declined by €159 million during the first half. Available liquidity reached €1.6 billion, which the group said was sufficient to cover all debt maturities until the first quarter of 2028 and all unsecured bond maturities until the third quarter of 2030. Year-to-date financing totalled €2.3 billion, including €1.7 billion of unsecured and hybrid bond transactions. Net interest coverage stood at 2.2 times.

Those figures do not prevent hybrid securities from falling in the secondary market. Hybrid prices incorporate expectations about future refinancing costs as well as a company’s ability to service debt today.

The ECB has raised borrowing costs again

Financing conditions shifted after the European Central Bank’s September 10 meeting. The Governing Council raised all three key rates by 25 basis points. From September 16, the deposit facility rate stands at 2.5%, the main refinancing rate at 2.65% and the marginal lending rate at 2.9%.

The ECB projects headline inflation averaging 3% in 2026, 2.5% in 2027 and 2.1% in 2028. Euro-area growth is forecast at 0.9%, 1.4% and 1.5%, respectively. The central bank has not committed to a predetermined rate path and says future decisions will remain data-dependent.

Real estate is particularly sensitive to benchmark rates because the impact comes from two directions. Higher rates increase the price of loans and bonds while also raising the return investors can obtain from lower-risk assets, pushing up the return they require from property.

Tens of billions of euros still need refinancing

At the start of 2026, financing conditions looked considerably more benign. The European Public Real Estate Association estimated the average cost of debt for companies in the FTSE EPRA Nareit Developed Europe Index at 2.85%. About €33.9 billion of bonds were scheduled to mature over the following 18 months.

The association described refinancing risk as manageable because coupons on maturing bonds were broadly aligned with prevailing funding costs at the time. That assessment depended on relatively stable capital-market conditions.

September’s rate increase changes the base from which new corporate borrowing is priced. Investment-grade landlords may be able to absorb part of the increase. For borrowers rated BB or lower, the higher risk-free rate is combined with a wider credit premium.

The adjustment is gradual rather than immediate. Property companies do not refinance their entire balance sheet at current rates at once. The pressure appears as older, cheaper loans and bonds mature and have to be replaced.

The 2023 downturn began with the same repricing mechanism

The scale of the previous real estate correction is visible in 2023 performance data. The INREV European Asset Level Index produced a total return of minus 4.03%, with capital values falling 7.81%. Offices returned minus 10.75% and residential property minus 5.39%.

Income from the properties remained positive, but it was not enough to offset valuation declines. Higher interest rates raised investors’ required returns and reduced the prices they were prepared to pay for assets.

Major listed landlords are generally better prepared today than they were three years ago. Many have disposed of assets, reduced near-term maturities and raised liquidity in advance. Weakness in selected high-yield and hybrid bonds therefore does not, by itself, demonstrate a new systemic property crisis.

Weaker borrowers are already seeking new debt terms

Pressure is clearer among companies with less flexible access to new financing. European Property Holdings proposed amendments in September to four listed bond issues with a combined nominal value of €411.775 million.

The proposal would extend all four maturities to September 30, 2031 and convert them into zero-coupon bonds. Instead of regular coupon payments, holders would receive higher redemption amounts ranging from 121.7% to 128.8% of face value, depending on the issue.

The case is separate from Net Zero Properties and does not describe the financial position of Aroundtown or CPI. It does, however, illustrate the growing difference between borrowers. Large issuers continue to raise substantial amounts, while companies with more complicated capital structures may have to push payments further into the future.

As International Investment experts report, the current market differs from 2023 because many large European landlords are better prepared for refinancing, with larger liquidity buffers, fewer near-term maturities and part of their hybrid debt already replaced. The central risk has shifted from an immediate shortage of funding to a gradual increase in financing costs. If rates stay elevated, the divide between stronger and weaker borrowers is likely to widen: the former can refinance at a higher price, while the latter may need to sell assets, reduce investment or renegotiate existing debt. For European property, the duration of expensive financing is therefore more important than any single monthly move in interest rates.

FAQ: European property debt

What is high-yield property debt?

It is debt issued by companies rated below investment grade. Investors typically demand higher yields to compensate for greater credit and default risk.

How are hybrid bonds different from ordinary bonds?

Hybrids are subordinated instruments that combine features of debt and equity. Many have no fixed final maturity and provide issuers with more flexibility, which also means greater risk for investors.

Why do higher rates matter so much for property companies?

Large landlords continually refinance parts of their balance sheets. When low-cost bonds or loans mature, replacement funding may carry a much higher interest rate and increase annual finance expenses.

Do higher interest rates automatically reduce property values?

No. Valuations also depend on rents, occupancy, location, supply and demand. Higher required investment returns can, however, put downward pressure on valuations even when rental income remains stable.

Does one cancelled bond indicate a property crisis?

No. A postponed issue reflects conditions for one borrower at a particular time. Broader stress would be better identified through refinancing volumes, defaults, forced asset sales and access to bank lending.

Which property companies are most exposed?

Companies with high leverage, large near-term maturities, weaker credit ratings and limited liquidity are generally more sensitive to higher financing costs.

What should investors watch in 2027?

The most important indicators will include the cost of new bond issues, upcoming maturities, asset disposals and interest-coverage ratios. These show how quickly higher rates are feeding through to corporate balance sheets.