This week's plunge in shares of Swedish real estate giant Samhallsbyggnadsbolaget i Norden AB (SBB) may be just the beginning of Europe's commercial real estate crisis, as central banks’ interest rate hikes push up financing costs and investor concerns about developers' prospects intensify.

After S&P downgraded its credit rating to junk status on Monday due to concerns about liquidity, SBB fell nearly 20% in one day. It closed down more than 24% on Tuesday and fell further on Wednesday, closing down nearly 7.3%, falling to a nearly six-year low. Shares were down nearly 44% in the first three days of the week, before Thursday's big rebound. As of Thursday, the market value had shrunk from more than $17 billion at the end of 2021 to less than $1 billion.

Affected by the sharp drop in SBB, the real estate sector of the STOXX Europe 600 Index also fell for consecutive days.

Citigroup analyst Aaron Guy estimates that the value of commercial real estate assets in Western Europe could plummet by as much as 40%, which could lead real estate companies to violate the terms of real estate contracts.

Guy believes that the risk of housing contracts, and the situation of real estate companies seeking to refinance to reduce low-to-value (LTV) ratios, will require a "significant re-securitization" of the housing sector. This means that the stock has downside room in the short term, but perhaps presents an opportunity in the medium term.

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