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25/2/2025
Cartsen Lieser
Property Market Research, Europe
Opportunities for private debt as market recovers
While the overall market sentiment in Europe is recovering, recent surveys of German credit institutions with exposure to the real estate market point to stricter lending conditions from banks. Banks reported more restrictive lending behaviour compared to pre-crisis levels. Quantitative criteria, such as debt yield, LTV and DSC have tightened, while pre-sale and pre-rental quotas are being enforced more rigorously, posing challenges in the current market.
Survey participants expect the crisis to persist throughout 2025, with both the real estate market and in-house real estate loan portfolios viewed as high-risk. Follow-up financing remains a key challenge amid elevated borrowing cost. In the case of office and retail properties, 90% of survey participants see a high or very high risk, while the level is significantly lower at 40% for hotel and logistics. Eventually, this most likely leads to a financing gap, which we see as an opportunity for private debt vehicles, as market fundamentals remain supportive as well. Prime yields have stabilized, and prime capital values turned positive given low supply and strong rental growth.
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