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Europe Real Estate Debt Market Update 2025

Alternative Assets
Real Estate

6/13/2025

Mid-Year 2025

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Cartsen Lieser

Property Market Research, Europe

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Europe Real Estate Debt Market Update 2025

IN A NUTSHELL

  • European CRE debt sentiment remains resilient despite volatility and macroeconomic headwinds, but solid real estate fundamentals should support the long-term investment rationale and rising attractiveness of Europe.
  • Lending conditions remain favorable despite competition leading to higher debt liquidity and tighter margins.
  • We see the best opportunities in whole loan strategies across the UK, Germany, France and Southern Europe, filling the gap from traditional banks, but also like junior loans as the financing gap still appears to offer opportunities.
  • On sector level, we have a wide focus, including office, retail and niche sectors, which are partially overlooked and appears to be catching up in relative attractiveness.

Tariff Turmoil

Robust real estate market 
The start of 2025 has been characterized by heightened volatility and uncertainty. Germany’s fiscal spending announcement initially triggered sharp movements in the bond market. This was followed by U.S. tariff measures and retaliatory actions from other countries, which intensified financial market turbulence, dampened growth expectations, and elevated risk levels—ultimately driving interest rates lower. Credit spreads widened sharply across the curve in the short term but have since retraced. While real estate spreads were not immune to the broader market turbulence, they significantly outperformed other sectors, exhibiting only modest widening. The sector appeared relatively resilient from tariffs possessive impact and benefits from lower interest rates, making the real estate debt investments highly attractive in our view. As global trade and geopolitical uncertainties start to fade, we believe that investing in Europe will look more attractive, especially with rising uncertainties in other parts of the world. 

Real estate debt attractive again   
The less restrictive interest rate environment provided a much-needed boost to financing conditions and liquidity in 2024. Transaction volume across Europe is gaining momentum and turning the corner albeit from a low level. Also important, debt rates being accretive again may provide positive leverage across most sectors and locations. With the compression of margins and base rates over past months, debt may be favourable for investors looking to enhance returns through leverage. Despite the expectation of more interest rate cuts to come, total cost of debt still appears attractive from a lender perspective.

Additionally, higher entry yields, strong fundamentals and completed price corrections add further support on asset level and may provide opportunities for real estate debt investments across the capital structure.

Rising transaction volume to provide new opportunities
Investment volumes across Europe have been trending upward, opening new avenues for commercial real estate lenders. However, geopolitical uncertainty weighed on Q1 2025, with deal activity falling short of Q1 2024 levels—particularly among major U.S. institutions. Domestic acquisitions reached their lowest point since 2013, driven by a sharp pullback from U.K. institutions, which have been net sellers since Q3 2020—offloading over €78 billion in assets. In contrast, German domestic investment rose nearly 40% year-on-year, albeit from a low base. Going forward, we expect European transaction volume to trend upwards on the back of lower rates strong fundamentals again. Especially office, retail and data centers could see a relatively increase compared to residential and logistics, thus creating new opportunities for lending across different sectors.

Europe Real Estate Debt Market Update 2025
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Risk information

Private Credit/Debt risks:  All investments involve risk, including possible loss of principal. Private Credit, Direct Lending investments are private and may not be appropriate or available for retail investors in the U.S. Investments in Private Credit are subject to various risks including but not limited to market risk, general economic and market conditions, economic recession risk, inflation/deflation risk, counterparty risk, prepayment and extension risk, debt securities, default risk, secured debt, second lien and subordinated loans, private investment risk, PIK interest risk, direct lending risk, interest rate risk, Illiquid portfolio investments, valuation risk, high yield debt, and reinvestment risk.

Real Estate risk:  Investing in Real Estate is subject to various risks, including but not limited to the following:  Adverse changes in economic conditions including changes in the financial conditions of tenants, buyer and sellers, changes in the availability of debt financing, changes in interest rates, real estate tax rates and other operating expenses; Adverse changes in law and regulation including environmental laws and regulations, zoning laws and other governmental rules and fiscal policies; Environmental claims arising in respect of real estate acquired with undisclosed or unknown environmental problems or as to which inadequate reserves have been established; changes in the relative popularity of property types and locations; risks and operating problems arising out of the presence of certain construction materials; and currency/exchange rate risks where the investments are denominated in a currency other than the investors home currency.

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