(Bloomberg) -- Canary Wharf became the latest symbol of the global real estate downturn, with Moody’s downgrading the debt of the landlord and forecasting a challenging funding environment for at least the next year.

The east London financial district, home to the skyscrapers of HSBC Holdings Plc and Barclays Plc, was cut to Ba3 from Ba1. Canary Wharf Investment Holdings Plc may need to rely on asset sales to repay borrowings or inject fresh capital into the business, the ratings company said.

Canary Wharf, owned by Brookfield and Qatar, has more than £1.4 billion of debt coming due in 2024 and 2025 against the backdrop of a “difficult operating and funding environment for real estate companies” Moody’s said. 

“The credit rating reflects the broader market environment,” a spokeswoman for the firm said. “We are in a strong financial position, have significant equity in the business with net assets of £3.6 billion and a loan to value ratio of 50.8%.” 

UK commercial property has been hit hard by the rapid rise in interest rates that have forced up landlords’ cost of borrowing and crimped valuations. At the same time, a pull back by lenders is increasing a funding gap for landlords with maturing loans. That combination is forcing some to contemplate asset sales, equity injections or expensive alternative sources of debt. 

The correction has also led to a standstill in investment markets as sellers cling to prices that have yet to reflect the new monetary policy environment. That’s creating a narrow tightrope for landlords that need to sell assets to reduce debt, with the risk that selling some properties at a discount will hit the valuation of their remaining portfolio. 

“Cautious investor appetite” is “leading to low transaction volumes and making it difficult to sell assets without offering substantial discounts,” the ratings firm said. Recent banking turbulence has put “further downward pressure on values.”

Canary Wharf Group is attempting to reinvent a district originally developed for investment banks that wanted large office towers. The company is building apartments and attempting to lure life science companies as part of an effort to inject new life into the area, which has seen several major tenants shrink their office footprints or leave the neighborhood. 

Its £300 million ($371 million) bond due for repayment in 2028 is currently being quoted at 68.7 pence in the pound. 

Office values in the City of London, London’s other financial district, have fallen by 21% int the past year, according to broker Savills Plc. While UK asset values have corrected more quickly than previous real estate downturns, other markets in Europe have been slower to update to reflect the new interest rate environment. 

That’s raising concern that the worst is yet to come for continental Europe which could be facing a “material correction in capital values” Morgan Stanley analysts including Bart Gysens wrote in a note last week. 

(Updates with analyst note in final paragraph)

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