Real estate debt funds face their day of reckoning
As Europe’s economic mood sours, a sharp rise in interest rates is putting commercial real estate through its first big cyclical turn since 2008. The non-bank sector, which has become a vital enabler of funding at higher leverage, now faces a test of its resilience.
Like a cruise ship docked between King’s Cross train station and the Eurostar terminal, Google’s vast new London headquarters is nearing completion in one of Europe’s best-connected locations. Complete with solar panels and rotating timber blinds, the so-called 'landscraper' will have a 300-metre-long garden on the roof, a swimming pool, a games room and space for 700 bicycles.
Alas, not all of London’s commercial real estate market is like this.
Eight miles to the east, a bland 21-block office development once touted by Boris Johnson as a second Canary Wharf – and a centre for Chinese and other Asian companies operating in Europe – is mostly empty, three years after it was finished.
Johnson gave Beijing-based ABP Group the right to develop the Royal Albert Dock in 2013, when he was mayor of London. The £1.7 billion project has since suffered from souring relations with China, delays in opening the nearby Crossrail station, and the post-Covid office exodus.