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Bank margins have nearly doubled since early-2022
Margins may be up, but bank lending appetite remains on the wane. German commercial real estate financiers are charging significantly more for loans than a decade ago, yet many are pulling back from the market. While this opens the door for debt funds and hybrid capital providers, the landscape is being reshaped by regulation, risk aversion, and a structurally narrower field of creditworthy borrowers.
The data is unambiguous. According to the most recent BF.Quartalsbarometer, compiled quarterly by BF.direkt and bulwiengesa since 2015, average bank margins on existing commercial properties hovered between 120 and 170 basis points until early 2022. Since then, they’ve climbed to between 220 and 240 basis points. Development financing has shifted even more dramatically, with margins rising from a previous ceiling of 240 to 337 basis points following the interest rate reversal—and remaining stuck there.
Francesco Fedele, CEO of BF.direkt, attributes this repricing to two core factors. “Banks consider real estate financing to be riskier in the new market environment and are demanding compensation for these risks,” he says. “Secondly, increasing regulation over the last decade is also playing an important role. Banks are required to hold more capital, which is in short supply and is also reflected in the margins.” For borrowers, that translates into significantly higher financing costs—up to 100 basis points more than pre-2022 levels, before interest rates are even factored in.
Margins up, banks step back
Despite higher pricing, the banks are lending less. Residential remains the only major segment with consistent activity. According to the VdP (Verband deutscher Pfandbriefbanken), two-thirds of Germany’s Q1 2025 property financing volume—€36.1 billion in total—was directed into residential loans, with a 51 percent year-on-year surge in multi-family lending. But commercial lending remains subdued. Where over 90 percent of banks once financed existing office stock, only two-thirds do so today. In retail, the proportion has fallen from 70 percent to just 32.6 percent since 2020.
“Shopping centres and high street properties in particular are now viewed much more critically,” says Prof. Dr Steffen Sebastian of IREBS. “Banks have accordingly withdrawn from these property segments.” Offices are faring little better. “This type of use has been seen as significantly riskier than before,” adds Fedele.
Loan-to-cost ratios have declined in parallel. Where pre-2022 projects with LTCs above 80 percent could routinely find backers, the norm today is 65 to 70 percent for well-calculated residential and 57 to 60 percent for offices and retail. “Banks are once again focusing much more strongly on well-known addresses with high credit ratings and a good track record,” says Dominik Rüger, Senior Director at JLL Debt Advisory. “If the project developer's calculations do not add up from the financier's point of view, this can lead to considerable frustration.”
The latest readings of the DIFI Index (JLL/HWWI) and the BF Quarterly Barometer tell slightly different stories. DIFI indicates a modest improvement in sentiment, while BF.direkt’s barometer remains firmly negative. But both suggest the same conclusion: credit is available, but only for the right sponsor, the right asset, and the right calculation.
Rules, risk and the retreat from commercial lending
If heightened risk perception explains banks’ caution, the regulatory burden helps explain their structural retreat. While BaFin has lowered the countercyclical capital buffer for residential lending, the overall equity load for commercial deals has not eased. Basel III rules, especially the output floor and the introduction of a so-called “property value” metric for secured loans, are driving up capital costs even for traditionally low-risk segments.
“Too much capital adequacy can prevent banks from providing the real economy with optimal credit. That helps no one,” warns Jens Tolckmitt, managing director of the VdP. He is also sharply critical of the EU’s fragmented implementation of Basel III, especially in contrast to the UK, Canada and the US, where timelines have slipped or adjustments made. In his view, European banks are playing by rules no longer observed by their global peers.
Sustainability regulation adds another layer of complexity. Contradictions between the EU’s EPBD, which prioritises upgrading the worst-performing buildings, and the taxonomy, which rewards those already compliant, are undermining clarity. “We advocate a significant streamlining,” says Tolckmitt. “And the Green Asset Ratio, in its current form, is completely meaningless.”
Yet the banks’ retreat is not universal. Hotels are regaining favour, with over 50 percent of lenders once again active after the pandemic-era collapse to just 13 percent. Logistics, though past its pandemic peak, still enjoys relatively broad support. The real gap is in offices and retail—segments where many developments are now stranded by high land costs, elevated construction budgets, and rents that no longer pencil out.
This is where private debt funds, mezzanine capital, and structured hybrids are moving in. Deutsche Pfandbriefbank’s “Originate & Cooperate” model is one example, blending bank balance sheet lending with external institutional capital to provide higher leverage or mezzanine tranches. Execution is faster, flexibility greater—but underwriting remains tight, and terms are rarely generous. In many cases, this resembles the re-emergence of club-style lending—but with fewer traditional players.
For institutional investors, the message is clear. Core residential remains bankable, if increasingly expensive. Hotels can offer yield, but only for top-tier sponsors. Offices and retail remain unloved, with liquidity fragmented. And across the board, borrowers are encountering more scrutiny, longer timelines, and a capital market that has become bespoke rather than broad-based. The margin is back, but so is the margin of error.