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According to AEW’s analysis, in 2025 the European commercial real estate debt market began to emerge from the stress phase of recent years, with an increase in financing volumes, more favorable credit conditions, and a more stable climate of confidence among investors and lenders. The most critical phase of the cycle now appears to be behind us, although risk remains high for non-prime assets and for markets with weaker appreciation prospects.

Acquisition-related financing volumes reached approximately €98 billion, up 26% from the 2023 low. The average loan-to-value (LTV) ratio for new loans rose to 50%. At the same time, overall financing costs have fallen to 3.8% in the Eurozone (from 4.5% the previous year), thanks to a decline in five-year swap rates to 2.2% and a narrowing of loan spreads to 160 basis points. This trend has brought the cost of debt below prime yields, which averaged 5.2%, making it once again cost-effective to use leverage to boost investment returns.

While banks remain key players, they are gradually losing ground to debt funds, which managed approximately €110 billion in commercial real estate loans by mid-2025. The increase in leverage and the easing of covenants reflect a greater appetite for risk and expectations of macroeconomic stability: effective LTVs have risen to 55%, and margins have narrowed, particularly for loans secured by commercial real estate, with a contraction of more than 35 basis points over the past year.

At the same time, the use of back-leverage structures—i.e., debt-on-debt—has become widespread as a tool to bridge the debt funding gap (DFG), estimated at €74 billion for the 2026–2028 period. This represents an 18% decrease compared to 2023, signaling an improvement in borrowers’ ability to refinance their loans, thanks to more favorable credit conditions and the growing presence of non-bank operators. Tensions, however, remain concentrated in certain segments: the commercial sector accounts for 41% of the DFG, followed by retail at 21% and residential at 19%.

Geographical differences are also marked: in France, the DFG is rising and accounts for 20% of original volumes; in Germany, it stands at 16%; and in Italy, at 10%, below the European average of 12%. Finally, in the United Kingdom, the gap is even narrower (6%), thanks to a banking system that is more selective but also faster in providing refinancing.

Expected losses on European real estate loans show a significant decline: the probability of default is estimated at 5.8% and associated losses at 1.6%, levels significantly lower than those observed in CMBS (Commercial Mortgage-Backed Securities) following the global financial crisis. Among the various segments, loans secured by retail real estate remain the most vulnerable, with losses around 5%, while for offices the average is 1.9% and for other asset classes it falls below 1%. In Italy, where the DFG and losses are below the European average, the picture is more balanced: more favorable credit conditions and a market less exposed to the sharp write-downs recorded in France and Germany contribute to strengthening overall stability.

Read the report: https://www.aew.com/site-assets/images/OCT-2025-Research-Report-Debt-002.pdf