Investors in real estate sector are bolstered with renewed prospects.
German Commercial Real Estate Financing Market Shows Signs of Stabilization
In a recent report from BF-Quarterly Barometer, sentiment among commercial real estate financiers in Germany has shown a slight improvement in the second quarter. While the market landscape remains challenging, early indications suggest that it is beginning to stabilize.
The report discusses several trends contributing to this stabilization, namely the growth in private and alternative financing, the rise of operating partner models, increased real estate investment volumes, and prudent lender behavior.
- Growing Private & Alternative Financing: Traditional banks, constrained by regulation and increased risk aversion, are reducing their riskier loans. In response, private credit investors and alternative financing structures like mezzanine loans and preferred equity are filling the funding gap, particularly in the mid-market segment. Preferred equity, in particular, is gaining traction due to its flexibility and ability to secure a minimum return for investors, benefiting in uncertain markets.
- Rise of Operating Partner Models: Foreign and domestic private equity investors are partnering with local operating partners. These collaborations contribute expertise in asset management, regulatory navigation, and tenant engagement, especially crucial in complex sectors like social real estate and hospitality.
- Investment Volumes and Recovery: Real estate investment volumes increased by 26% year-on-year in the first quarter of 2025, signaling improved market sentiment. However, this recovery is uneven, with diverse demands across asset classes and locations.
- Prudent Lender Behavior: Banks are adopting a cautious approach, demanding higher deposits and being selective in their lending. This results in a more disciplined financing environment, which in turn helps stabilize prices and reduce speculative activity.
The report further focuses on the hotel and social real estate sectors, identifying distinct implications for each.
- Hotels: The hospitality sector is observing a slow but steady recovery, with long-term investors exhibiting increased interest in distressed or undervalued assets. Private credit is filling the void left by traditional banks, providing essential liquidity for refinancing and redevelopment projects.
- Social Real Estate (Multifamily, Senior Housing, Affordable Housing): Institutional investors and domestic funds are focusing on core and core-plus strategies in multifamily and social housing. The operating partner model is particularly effective, as deep local knowledge and tenant engagement are critical to success. Preferential tax treatments, such as the new declining balance depreciation for new residential properties from 2025, are also incentivizing investment in this sector.
The report also highlights a growing focus on ESG (Environmental, Social, and Governance) criteria across both sectors, aligning with regulatory requirements and changing tenant preferences.
Regulatory changes, interest rate and inflation dynamics, and market sentiment are among the influential factors shaping the commercial real estate financing market.
Taking into account these trends and factors, the German commercial real estate financing market is showing tangible signs of stabilization, offering new opportunities for hotels through private redevelopment and social real estate through institutional investment and local expertise, with a growing emphasis on ESG criteria to support long-term stability.
Investors are increasingly turning to private and alternative financing solutions, such as mezzanine loans and preferred equity, to fill the gap left by traditional banks reducing their riskier loans in the mid-market segment.
Furthermore, the rise of operating partner models is beneficial for foreign and domestic private equity investors, as they partner with local operators to provide expertise in asset management, regulatory navigation, and tenant engagement—especially crucial in complex sectors like social real estate and hospitality.
