Sharp decline in German CRE lending sentiment in Q2 2026

Lender sentiment within Germany's commercial real estate sector deteriorated significantly in the second quarter of 2026.

Professor Steffen Sebastian and Francesco Fedele

The latest BF.Quartalsbarometer—a quarterly index published by BF.direkt AG in cooperation with the Handelsblatt Research Institute—recorded a sharp 9.74-point drop in the real estate sentiment index, bringing it to a low of -25.97 points.

This substantial decrease highlights a severely constrained willingness to provide new property financing. This trend is primarily attributed to macroeconomic uncertainty, fears of rising inflation, and interest rate volatility stemming from ongoing geopolitical conflicts. The findings are based on a lender survey conducted between 8 June and 16 June 2026.

The Q2 survey indicates a marked worsening across several key credit metrics. Nearly half of all respondents (46.15%) reported a deterioration in financing terms compared to the previous quarter, up from 27.27% in Q1. Additionally, 23.08% of lenders reported a decline in new lending business, contrasting with 0.0% in the first quarter.

Financial institutions of all sizes observed an increase in demand for small-scale loans (below €10 mln) and a concurrent decrease in major financing deals, specifically those ranging from €50 mln to €100 mln and exceeding €100 mln.

There has also been a notable shift in the loan underwriting process. A total of 26.92% of respondents (+17.82 percentage points) indicated that their loan decisions were primarily driven by their risk departments. Conversely, zero respondents stated that their decisions were influenced by the new lending division (-7.69 percentage points).

Despite stricter underwriting standards and pervasive pessimism, leverage limits and lending margins have remained relatively stable. For existing portfolio properties across all sectors, the average Loan-to-Value (LTV) ratio was 64.2%. For new development projects, the average Loan-to-Cost (LTC) ratio was 66.3%.

Lending margins varied according to property type and development status. For standing properties, margins ranged from 135.0 basis points for residential to 184.3 basis points for logistics. For development projects, margins spanned from 252.7 basis points for residential to 301.1 basis points for office properties.

Professor 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 BF.Quartalsbarometer, said: “The results are primarily explained by the war in Iran and its consequences. The energy shock has an inflation-driving effect, which in turn causes fear of rising interest rates. All this is hitting a sector that has been in a precarious situation anyway since the massive interest hike in 2022.” 

Francesco Fedele, the CEO of BF.direkt, added: “The most recent quarterly barometer survey coincided with the very start of the Iran conflict. Many financiers initially took it in stride. However, they gradually lost their composure over the course of Q2, causing sentiment, and with it the barometer score, to take a nosedive.”