German commercial real estate lenders reported their strongest sentiment since early 2022, with improved refinancing conditions and growing competition driving margin compression across property sectors.
The BF.Quarterly Barometer sentiment index rose from -9.58 points in Q2 to -7.04 in Q3 2025, reflecting improved conditions among 110 real estate financiers. While still negative, the reading represents the best performance in over three years.
Refinancing stability drove the improvement. Over 70% of lenders reported stable liquidity costs, up from 41% in the previous quarter. Only 19% now report rising refinancing premiums, down from 50% in Q2. This suggests funding pressures that constrained lending activity throughout 2023-2024 are easing.
New business activity is recovering with improved funding conditions. Around half of surveyed experts reported growing loan volumes, with larger transactions returning. Loans between €10-50 million increased to 39% of total volume, up 3.9 percentage points, while smaller loans below €10 million fell to 44%.
"Banks are once again providing large-volume financing as proof they have their refinancing under control," said Professor Steffen Sebastian, Chair of Real Estate Finance at IREBS. "This goes hand in hand with a stable market recovery, though we are still a long way from a balanced financing market."
Margins Compress as Competition Returns
Improved sentiment is translating into better pricing for borrowers. Average margins fell significantly across existing properties and development projects.
For existing properties, margins dropped from 225 basis points in Q2 to 204 basis points in Q3. Project development margins declined from 332 to 302 basis points.
Loan-to-value ratios remained stable, edging down from 61.9% to 61.1% for existing properties. Development loan-to-cost ratios fell from 70.3% to 69.7%, suggesting lenders maintain cautious but not restrictive underwriting.
"This shows there is once again more competition in commercial real estate financing," noted Francesco Fedele, CEO of BF.direkt. "More competition means providers reduce margins. Falling margins are also an indicator of declining risk."
Residential properties remain the most popular lending target. Office properties continue ranking high, nearly matching logistics in popularity. Almost 70% of respondents finance existing office properties while 54% finance office developments, contradicting assumptions about sector decline.
The improved conditions reflect market stabilization following the US tariff dispute settlement and planned German economic stimulus measures. Sebastian noted that market players are "looking to the future with somewhat more optimism."
Foreign lenders are returning to the German market. While only 19% confirmed increased foreign lender presence, most view international investor influence as supporting market stability. Financing experts particularly noted the return of Anglo-Saxon investors.
The sentiment improvement suggests German property financing markets are moving toward normalisation after two years of constrained activity. However, the negative reading indicates conditions remain below balanced levels, with further recovery needed before reaching pre-crisis equilibrium.