European NPL Real Estate market booming amid economic headwinds

Drooms has released a White Paper highlighting the significant surge in non-performing loans (NPLs) within the European real estate market. 

Real estate - Drooms

The report underscores that while the market faces challenges like bankruptcies among developers and condominium sellers, a cooling economy, and pressure in the commercial sector (including light industrial and logistics), NPLs present an attractive entry point for savvy investors. 
Demand and market activity for NPLs are particularly strong in Southern Europe, where banks have successfully offloaded distressed assets, leading to declining NPL ratios in countries like Spain and Italy. Conversely, Central European nations such as France (+0.07%), the Netherlands (+0.12%), and Germany (+0.23%) are experiencing rising NPL ratios.
According to the European Banking Authority (EBA), the EU's NPL ratio stood at 1.93% of all bank loans, totalling €356.97 bn across the European Economic Area. Concurrently, the volume of new loans granted decreased, and the NPL coverage ratio fell for the third consecutive year to 42.44%, indicating higher potential returns but also increased risk for NPL investors.
Amid a restrictive lending environment and economic/geopolitical uncertainties, banks are continuing to restructure their balance sheets, increasingly outsourcing NPL risks to the less regulated private sector. This can distort official NPL ratios, especially in active NPL markets where turnaround opportunities are perceived.
NPLs for commercial real estate in Germany specifically surged in 2024, rising from €8.4 bn to €10.3 bn – the highest volume in a decade (nominal and inflation-adjusted). Experts predict this elevated level will persist.
Drooms anticipates a likely increase in NPLs across the EU and UK, with the real estate, banking, and SME sectors being most affected. The NPL ratio in real estate is expected to rise slightly in the medium term before stabilizing.
Price corrections in residential real estate, combined with collateral pressure on lenders due to high capital costs, could lead to more sales at potential losses or liability restructurings.
Eurostat figures show that reported insolvencies reached their highest level since 2013 by the end of 2024, signalling growing restructuring needs for European companies.
The NPL Barometer (Frankfurt School of Finance) indicates considerable stress in German commercial real estate loans, which are sending the strongest stress signals, unlike relatively stable residential real estate.
Surveyed credit professionals project German NPL volumes to reach up to €50 bn by the end of 2025 and €60 bn by 2026. PwC observed a 56% NPL increase in commercial real estate in 2023 and expects further rises.
Experts believe portfolio prices will stabilize, making NPL entry more attractive for investors. Market and regulatory pressure will also compel players to engage in NPL loan transactions, stimulating the transaction market.
https://drooms.com/resources/white-papers/the-npl-real-estate-market-in-2025/