Market Radar Europe: Tightening Debt, EU Housing Crisis Plan, and Retail Shifts

European Real Estate Debt Market Sees Growth and Shifting Dynamics

The European real estate debt market is navigating a period of change, with tightening lending margins and lower transaction volumes. According to DWS, increased competition is driving these trends, but a recovery is expected as loans from the low-interest period mature. 

Despite these challenges, the market remains resilient, supported by a growing role for non-bank lenders. These lenders - who grew in prominence since the global financial crisis and continue to enhance liquidity and resilience - are offering more flexible financing solutions, with rising loan-to-value ratios and tailored capital options that have become increasingly attractive to investors.

A prominent topic at GRI events and highlighted in our European Commercial Real Estate Outlook 2025/26, is the rise of the operating partner model as capital providers, particularly from the Middle East, are increasingly seeking experienced property lending platforms to streamline underwriting and deal sourcing. 

This reflects a broader shift towards more bespoke, transparent strategies, as allocators seek lower-risk opportunities with higher due diligence, a consideration that will be front and centre at the upcoming GRI Credit Opportunities & RE Debt 2025, taking place in London on November 26th.

Europe’s Housing Crisis: Addressing Shortages and Unlocking Investment

Europe is facing a severe housing shortage, exacerbated by rising rental demand and a significant supply-demand imbalance. A Partners Group report highlights that institutional ownership remains low due to fragmented regulations and operational complexities. 

With the European Affordable Housing Plan expected later this year, European Commission President Ursula von der Leyen emphasised the need for a "radical overhaul" of housing policies, aiming to streamline delivery through revised state aid rules and more efficient building processes. 

The plan seeks to mobilise both public and private investment to expand Europe’s housing supply and address long-term shortages.

INREV's Position Paper on the plan stresses the need for a unified pan-European strategy that aligns public policy with private capital to tackle the EUR 12 trillion investment gap, highlighting the importance of housing as critical infrastructure and calling for reforms to simplify permitting processes and promote public-private partnerships. 

Despite the availability of private capital, regulatory barriers, such as slow permitting and inconsistent land-use policies, hinder progress, leading to a push for changes including adaptive reuse, industrialised construction, and zoning reforms to accelerate housing delivery.

European Real Estate Faces Shifting Sentiment, Yet Key Sectors Remain Resilient

Sentiment in European real estate is shifting towards a more pragmatic outlook, according to DWS, as macroeconomic pressures and geopolitical uncertainties take centre stage. Despite these challenges, optimism persists around increased debt and equity availability, especially from emerging investors such as family offices and private equity funds. 

Deglobalisation, climate risk, and a focus on niche sectors like data centres and student housing are driving change, while major cities such as London, Paris, and Berlin continue to attract investors due to their liquidity and resilience.

In the retail sector, the convergence of physical and online shopping is reshaping the landscape, with omnichannel strategies becoming essential. Colliers highlights that Gen Z's demand for digital engagement and authenticity is driving much of this change. 

Despite economic uncertainty, retail spending growth continues with modest gains in Europe. Meanwhile, fashion remains dominant in retail leasing, as revealed by Cushman & Wakefield, with luxury assets thriving - particularly in high-tourism markets like Italy and the UK.

Look out for the latest insights on CRE trends from next week’s GRI Commercial RE Europe 2025 and GRI Data Centres Europe 2025, happening on November 18th in London.