Germany’s commercial real estate sector is entering a period of intensified restructuring, with mounting evidence that asset repricing, tighter financing conditions and patchy policy support are driving a slow build-up of non-performing loans (NPLs). While a major wave of defaults remains unlikely, stress is clearly accumulating—particularly in development financing, legacy office portfolios and high-leverage deals underwritten at pre-2022 valuations.
The European Banking Authority’s most recent data show that, as of June 2024, around €520 billion of commercial real estate loans across the EU/EEA sit above the 60% loan-to-value (LTV) threshold. Of these, €150 billion are already above 100% LTV, suggesting widespread negative equity. Despite moderate repricing, the shift toward lower-risk profiles remains limited. Almost €920 billion remains below 60% LTV, virtually unchanged from the year before.
Market participants are bracing for further deterioration. Responses to the EBA’s latest Risk Assessment Questionnaireshow a significant number of banks expect asset quality to weaken further in the next six to twelve months. The warnings echo findings from distressed specialist ARCIDA Advisors, with whom REFIRE met recently at the MIPIM in Cannes to discuss the NPL market. ARCIDA's managing partner Jan Düdden argues that proactive restructuring is now the key to avoiding widespread insolvencies. “Our experience shows that if you act early and initiate restructuring, you can often avoid insolvencies,” Düdden says. “This can help to get the real estate industry, which contributes almost 20% to Germany’s gross value added, moving again.”
Ongoing policy paralysis in Berlin
Despite slightly improved financing conditions and falling inflation, there is still no coordinated federal policy to accelerate repricing or support refinancing mechanisms. While policy paralysis continues in Berlin, developers face rising insolvency risks. The IWH (Leibniz-Institut für Wirtschaftsforschung Halle) reported 1,342 corporate insolvencies in January 2025 - fully 24% above the same month in 2024 and nearly 50% above the 2016–2019 average.
At last November's Real Estate Finance Day in Frankfurt, financial experts broadly agreed that the current cycle is less a liquidity crisis than a confidence crisis. “The banks have less crap on their books,” said Clarence Dixon of CBRE Loan Services. “We won’t see the big NPL portfolios, but we will see individual loans under stress.” Most observers now expect a 12- to 15-month restructuring phase, with legacy developments and smaller sponsors under particular scrutiny.
Others point to a geographic divergence in recovery. Deutsche Pfandbriefbank’s Walter Hampel noted that countries such as Spain, Poland and Italy are already seeing stabilisation, aided by shallower yield compression during the boom. In contrast, Germany’s overvalued prime assets—particularly in logistics and office—are proving slower to adjust.
By comparison, Germany’s residential real estate financing system has fared better. According to a study by the German Economic Institute (IW Köln), non-performing housing loans in Germany remain low by European standards, averaging 0.8% between 2019 and 2024. IW’s Dr. Michael Voigtländer attributes this to Germany’s fixed-interest mortgage culture, lower reliance on variable-rate loans, and generally cautious lending practices. “Germany’s mortgage system has proven itself under difficult conditions,” Voigtländer said, while also calling for additional risk buffers such as mortgage insurance schemes modelled on Dutch practice.
Investors with differing yield expectations
There is, however, no shortage of capital. As Michael Morgenroth of Caerus Debt Investments observed, “There is enough capital available, but investors have different yield expectations than before.” Whole loans are now pricing at 7–9%, and alternative lenders increasingly demand more equity and stronger collateral.
With Basel III set to increase the risk weighting of project loans to 150%—the same as defaulted assets—banks are tightening terms. According to Jens Tolckmitt of the Association of German Pfandbrief Banks (vdp), real estate developers are being hit hard. In view of the increased demands on the borrower's ability to service debt and equity, as well as the increased reporting requirements in terms of sustainability, Tolckmitt expressed amazement at the size of the financing volume that banks were still realising. And Berlin Hyp’s CEO Sascha Klaus said, “We need a market shakeout... Too many smaller developers are in financial difficulty because their equity reserves have been depleted.”
For institutional investors, opportunities are emerging in the cracks—particularly in development finance, where price corrections have already occurred. But underwriting discipline, collateral scrutiny and early engagement will be essential. The current cycle will not be rescued by liquidity alone. Without restructuring, the recovery will remain stalled.