Real estate, debt to banks falls to 74 billion in Europe

In the commercial real estate galaxy, the European debt funding gap (i.e. the total amount of shortfall between the original amount of secured debt and what is actually available for its refinancing at maturity) is falling sharply.

In the 20 largest European countries - according to Aew's latest estimate - it has fallen by 18% to EUR 74 billion for the period 2026/2828, compared to more than EUR 90 billion for the period 2024/2026 quantified two years ago. On the one hand, the interest rate cut by the ECB has lightened the burden. On the other hand, however, the protagonism of non-banking financial players (funds, insurance companies) is growing in the sector, and above all the dynamism of debt funds which, in many cases, use back-leverage strategies. In practice, they borrow money (at a lower cost), using their own investment portfolio as collateral.

"Our revised estimate of EUR 74bn for the European real estate debt financing gap confirms that refinancing difficulties have eased," stressed Hans Vrensen, head of research & strategy Europe at Aew (an affiliate of Natixis IM). Prime yields and now stabilised financing costs make debt capital more attractive for equity investors, particularly in the Eurozone, where swap rates are more favourable than in the UK. Since the start of the year, in 2024 and 2025 we have observed an upturn in both overall transaction volume and loan volume, with recent loans reflecting higher loan-to-value ratios. This shows an increase in the confidence of both lenders and borrowers and the ability of the former to take on more risk. Increased lending by debt funds and greater use of back leverage are helping to alleviate the refinancing difficulties that remain, at least in the short term'.

While debt is falling in all the major countries, the exception is France, where the challenge of difficult refinancing concerns - according to the analysis - 20% of loans originated in the 2017/2024 period (compared to 18% last year), due to a less robust expected recovery especially in logistics and offices. Germany follows (at 16%, still better than the 20% estimated a year ago). Spain and Italy also improved on last year and are well below the European average, at 10% and 8% respectively. In the UK, the share of hard-to-repay housing debt remains in the lowest range, at 6 per cent. Overall, secured office loans account for 41 per cent of the total European real estate deficit, followed by 21 per cent of loans in the retail sector (shops, outlets and shopping centres) and 19 per cent of loans in the residential sector.

"Debt funds," Vrensen added, "are gaining market share, with 43 non-bank lenders estimated to hold EUR 110 billion of European commercial debt by mid-2025.