LONDON, Nov 28 (Reuters) - M&G Real Estate forecasts it is "a matter of time" before global property markets face greater volumes of forced selling, with banks increasingly reluctant to refinance troubled or lower quality assets at current interest rates.

Property developers in China, Germany and Sweden have in particular suffered as a result of a sharp rise in borrowing costs in recent years, with some projects financed at rock-bottom rates now close to, or breaching, key loan terms.

"We had it really good in the last 25 years but now financing costs are higher and returns will have to come either from rental growth, or from adding value to properties," Jose Pellicer, head of investment strategy at M&G Real Estate said.

"We are in a new period of real estate investment that will require a new mindset," he told Reuters before the publication of the firm's Global Real Estate Outlook on Tuesday.

Pellicer said a recovery in the Chinese market would likely take time, although its troubles were cyclical rather than structural and key growth drivers like urbanisation were intact.

In Europe, Germany would likely see the largest volume of forced property sales, Pellicer predicted, with the market reeling more than others from higher costs of real estate debt and a sharp repricing of assets.

Nearly 40% of outstanding British commercial real estate loans are due to mature in 2024 and 2025, where average real estate values have fallen by over 20% since mid-2022, the report said, citing data from Bayes Business School.

Some borrowers would be unable "to meet interest coverage ratio covenants for loan renewals" and may have difficulty finding refinancing options open to them.

M&G, which manages 31 billion pounds ($39 billion) in property assets, said this might provide an opportunity for alternative lenders to step in.

"Real estate debt is becoming an increasingly attractive investment proposition," Pellicer said.

OFFICE WOES

The global office market has been rattled by the bankruptcy of WeWork, darkening the outlook for the largest business hubs, where rising vacancies are already hitting investors.

But not all offices are equal, Pellicer said.

Low-quality offices are a risky investment globally, as employees remain slow to abandon home working after the COVID-19 pandemic and buildings face costly upgrades to meet sustainability targets, the report showed.

The United States is in a far worse position than Asia or Europe, with downtown vacancy rates in key cities typically between 25-30% versus single digits in major European business hubs, Pellicer said.

U.S. office-based working is at only 50% of pre-pandemic levels, the report cited real estate services firm JLL as estimating, while numbers in Europe have recovered to 75%.

M&G said a focus on environmental, social and governance credentials and central locations was creating a market of prime, ultra-prime, and secondary space, with non-prime properties facing "significant leasing risk and weak rental prospects". ($1 = 0.8025 pounds) (Reporting by Carolyn Cohn and Sinead Cruise; Editing by Alexander Smith)