176 Billion Euro Gap Threatens European Real Estate Market

The European real estate market faces a substantial challenge, with a looming debt burden of approximately €176 billion related to immovable properties set to mature within the next four years. More than a quarter of this debt might remain without refinancing, according to recent findings.

Data from CBRE Group, as reported by Bloomberg, unveils an estimated €640 billion in loans granted from 2019 to 2022, with only a portion currently available for refinancing, resulting in a significant gap of up to €176 billion.

This is due to plummeting property values, making debt scarce and more expensive. The CBRE report assessing the potential deficit from 2024 to 2027 highlights how property values have shrunk, exacerbating the challenge of refinancing.

Banks have restricted lending due to the sharp decline in asset values, leading to a rise in problematic property loans on their balance sheets. This worsens the already challenging environment for borrowers, witnessing their debt grow as property values diminish. While some manage to inject fresh equity to secure new loans, others are forced to sell if feasible.

“European property markets have faced a period of challenges over the past two years,” noted the report’s authors. “Market conditions have been particularly tough for leveraged investors.”
CBRE’s data reveals that loans linked to office buildings represent nearly half of the anticipated deficit.

The projected gap is based on current valuation and debt availability, but this could potentially decrease if interest rates stabilize and central banks commence reductions, as currently anticipated. This could lead to a recovery in capital values and improved financing terms, reducing the gap by approximately 35%, according to CBRE’s analysis.