Debt distress greater in Eurozone than in the UK

11/16/2025

Autor

Marco Keim

Regional Director

Blogbeitrag

Private lending to European CRE is rising but unlikely to fill the funding gap — yet low rates and ongoing borrower-lender talks limit default risks.

According to our Altus Debt Survey where 52 companies contribute Data in Q2 we can report the below Key highlights:

CRE values have stabilised in the UK and Eurozone but the potential for stronger value growth remains limited for the rest of 2025
Private lending plays a larger role in the UK than in Europe, where 80% of CRE loans come from banks, but while interest in nonbank lending is growing, it’s unlikely to fully close the looming financing gap.
Eurozone interest rates have fallen markedly, potentially making it easier for buyers to inject liquidity into their refinancings.

With a major wave of defaults on Eurozone CRE unlikely to occur, the impact of refinancings should not present a major risk to valuations. CRE values stabilise, but growth outlook remains limited. A stabilisation in capital values and decline in interest rates have sparked optimism that the worst of the real estate debt refinancing challenge is in the past. This seems to be the case for the UK market. In the Eurozone, however, surveys indicate that banks are still pulling back on CRE lending and intend to tighten their credit standards and loan terms further in the coming months. Although a wave of distressed selling seems unlikely at this point, this will pose a problem in the Eurozone since banks dominate the lending market and alternative lenders are not big enough players to fully plug looming debt refinancing shortfalls. Commercial real estate (CRE) values have bottomed out in both the UK and the Eurozone. At the very least, they have stabilised and may be on the rise again soon. While Capital Economics expects a slow recovery in the sector, the outlook is slightly brighter than anticipated a year ago. Strongercapital value growth points to the potential for a slightly stronger recovery in collateral values, which should help increase debt available at refinance on a loan-to-value (LTV) basis.

That said, developments in CRE lending markets have been more mixed but there is evidence that LTVs on new loans ticked up last year in both the UK and Germany. LTVs for refinance will likely be lower, but this could suggest that lenders are taking on more risk now that values have stabilised. Despite increased rises in 5-year Euribor and SONIA swap rates since December 2024, the Bank of England (BOE) and European Central Bank (ECB) lowered interest rates at their most recent meetings in May and June, respectively. Based on statements from these latest policy meetings, industry experts expect borrowing costs to fall at least another 25 bps in H2 2025. Thus, pressure on interest coverage will ease for borrowers on floating rate loans or with refinancing coming due.

CRE borrowers face tighter credit in the Eurozone
However, other evidence suggests that credit conditions are set to remain tight in the Eurozone. Whereas UK lenders have been reporting increases in the availability of CRE credit since Q1 2024, this contrasts with a net balance of 16% of Eurozone banks tightening their CRE lending standards in H2 2024. Though banks reduced margins on their corporate lending, 8% tightened CRE loan terms and conditions in H2 2024, with collateral requirements the most widely cited contributor to stricter terms. In addition, an even larger balance of banks anticipated that they would tighten their CRE loan terms in H1 this year.

UK leads in non-bank lending; Europe lags
In contrast to the UK, where non-bank lenders account for around 40% of CRE lending, figures from the ECB indicate that, in Q4 2023, Eurozone banks accounted for 80% of the €1.6trillion in outstanding loans and debt securities to Eurozone REITs, real estate companies and real estate investment funds. Even after surging during 2023 and 2024, investor interest in CRE debt came off the boil in Europe at the start of 2025.