Thursday, 23 October 2025
The European real estate debt market is showing clear signs of stabilisation, with new research from AEW indicating that the region’s credit financing gap is shrinking. The firm’s latest report estimates that between 2026 and 2028, the gap between maturing loans and available refinancing will amount to €74 billion, an 18% decline from the previous forecast. The data suggests that improved lending conditions and the return of investor confidence are helping to ease refinancing pressures across Europe.
According to AEW’s Head of Research & Strategy for Europe, Hans Vrensen, the current market reflects “a significant improvement in refinancing conditions,” driven by steady interest rates and rising loan activity. Over the past year, both lenders and borrowers have become more confident, supported by stabilised yields and better loan-to-value ratios. This has encouraged a modest return of risk appetite, particularly in eurozone markets, where financing remains cheaper than in the UK.
The report highlights that debt financing is becoming more accessible as competition among lenders intensifies. Margins for loans on office properties, once under pressure from high vacancy rates, are now converging with those in the logistics and residential sectors. Lending terms are loosening slightly, with higher leverage levels and lower borrowing costs being observed, especially in countries with robust collateral markets such as France and Germany.
Across Europe, the overall refinancing challenge now affects around 12% of outstanding real estate loans—down from 13% a year earlier. The improvement is not evenly distributed: France faces the highest level of refinancing pressure, with roughly one in five loans issued since 2017 at risk of difficulty, largely due to slower capital value recovery in its office and logistics segments. By contrast, Germany, Spain, and Italy have seen marked progress, with refinancing risks dropping to 16%, 10%, and 8% respectively. The UK remains the most resilient market, with only 6% of loans facing potential shortfalls.
The largest share of outstanding debt exposure lies in the office sector, representing 41% of the total gap, followed by retail (21%), residential (19%), and other property types accounting for the remainder. While office and retail remain under pressure, the logistics and housing sectors continue to attract lenders seeking stable, long-term income.
A notable trend shaping the current recovery is the growing role of private credit funds, which now manage roughly €110 billion in European property loans. These funds are increasingly using so-called “loan-on-loan” financing, known as back-leverage, to provide liquidity where traditional banks remain cautious. AEW notes that while these structures help bridge short-term financing gaps, they may pose risks to long-term market stability if left unregulated.
Overall, the outlook for defaults and losses has improved. The proportion of commercial property loans at risk of default has fallen from 7.1% to 5.8%, and expected losses have eased to 1.6%—well below the levels recorded during the 2008 financial crisis. Although refinancing challenges persist for some older, lower-quality assets, the broader picture suggests that Europe’s property debt market is regaining balance.
AEW concludes that stabilising interest rates, competitive lending, and the return of non-bank capital are supporting a gradual normalisation of the sector. While investors remain cautious, the report signals that Europe’s commercial property market is entering a more sustainable phase—one defined by selective risk-taking, disciplined lending, and renewed access to financing.
