German commercial real estate lender sentiment improves

Commercial real estate lender sentiment improved slightly in Q2 2025, with the BF.Quartalsbarometer rising to -9.58 points, the highest level since Q2 2022. 

Construction site - source Bulwingesa

Fewer lenders reported tightening financing terms (36.8%, down 8.2 percentage points), while more reported stable or increased new lending volume (50%, up from 32.5%). 
Banks are showing increased willingness to finance less common asset classes. Financing for existing hotels (up from 37.0% to 52.6%), social real estate (from 17.4% to 31.6%), and micro-apartments (from 50.0% to 63.2%) has all seen notable increases in lender approval over the past year. Residential developments, particularly those involving splitting houses into apartments, also experienced a jump in financing availability (from 45.7% to 60.5%). 
Margins for existing property developments saw a negligible increase to 225 basis points, while new-build developments rose marginally to 332 basis points. Loan-to-value ratios for existing properties and loan-to-cost ratios for new developments also edged up slightly (from 67% to 70%).
Professor Dr. Steffen Sebastian, tenured chair of real estate financing at the International Real Estate Business School (IREBS) of the University of Regensburg and scientific advisor of the BF.Quartalsbarometer, commented: “The mood among real estate lenders may have brightened when the new German government was formed, among other reasons, although there is little cause for celebration within the real estate industry, considering the contents of the coalition agreement and the distribution of cabinet positions among the two governing parties. In addition, the Federal Financial Supervisory Authority (BaFin) lowered the systemic risk buffer for residential real estate. At the same time, the supervisory authority continues to rate the situation in the commercial real state segment as unstable. This view is probably shared by most real estate lenders and may well be the main reason why sentiment remains subdued.” 
Fabio Carrozza, managing director of BF.real estate finance, one of the member companies of BF.direkt, added: “It is true, sentiment among real estate lenders has gradually perked up. However, the reluctance to finance that banks have persistently shown since 2022 remains a fact. Even though new lending has been picking up steam, the volume is still on a low level. There are various reasons for the reticence in bank lending. Volume and number of sub-performing real estate loans continue to be high. Another reason is the tightened regulatory framework, which also explains why new lending is not the chief priority for banks right now.” 
The BF.Quartalsbarometer, a German real estate lending sentiment index, is produced quarterly by bulwiengesa for BF.direkt. The index is based on a survey of approximately 110 loan approval experts from various banks and financial institutions. It measures sentiment by analyzing factors like financing terms, new lending volume, loan amounts, risk tolerance by asset class, loan-to-value ratios, margins, alternative funding, and liquidity costs.
Meanwhile, German Pfandbrief banks significantly increased property lending in Q1 2025, up 24.5% year-over-year to €36.1 bn, and 19.1% quarter-over-quarter. This growth was primarily fueled by a surge in residential property lending, which reached €24.4 bn, a 31.9% year-over-year and 35.6% quarter-over-quarter increase. While commercial property lending also saw a yearly increase of 11.4% to €11.7 bn, it decreased 4.9% compared to the previous quarter.
Of the €24.4 bn in residential property loans issued in Q1 2025, multi-family house financing saw the largest increase, surging 51.2% year-over-year to €6.5 bn. Loans for one- and two-family houses (€11.7 bn), condominiums (€4.9 bn), and other residential properties (€1.3 bn) also experienced double-digit growth.
Commercial property loans totaled €11.7 bn in Q1 2025, remaining relatively stagnant. While retail property loans increased to €3.7 bn, office property loans decreased year-over-year to €4.3 bn. Loans for other commercial properties (€2.0 bn), hotels (€1.4 bn), and industrial buildings (€300 mln) made up the remaining volume. Overall, the commercial lending segment showed subdued activity.