At a European level, the market for non-performing loans appears stable on the surface. The total volume of non-performing loans (NPLs) at institutions directly supervised by the European Central Bank decreased by just EUR 1.81 billion to EUR 355.16 billion in 2025. However, the latest report 'Europe's NPL Market 2026' by data room provider Drooms highlights a clear geographical shift in default risks. While ratios continued to fall in southern European countries such as Spain, Germany and France recorded noticeable increases.
Tensions mount in German commercial real estate financing
In Germany, the NPL volume grew by EUR 4.56 billion to a total of EUR 53.49 billion. Tension is particularly pronounced in the commercial real estate financing segment, where the default rate climbed from 5.9 to 6.9 per cent. Germany thus holds the top position among the five largest European markets, ahead of Spain, France, Italy and the Netherlands. The situation is exacerbated by upcoming loan extensions. The German Loan Purchase and Servicing Association (Bundesvereinigung Kreditankauf und Servicing e. V.) forecasts an upcoming refinancing volume of EUR 74 to 86 billion for commercial properties between 2026 and 2028, facing an altered interest rate and valuation environment.
Oliver Platt, partner at Kucera Rechtsanwälte, notes that the actual risk in German commercial loan books is likely to exceed the officially reported ratios. Geopolitical tensions have acted as a catalyst for existing frictions in valuations and cash flows. A clear differentiation by asset class is emerging across the market:
- —High refinancing pressure weighs particularly on office-heavy portfolios in secondary and tertiary locations, as well as on weaker retail properties.
- —Highly leveraged value-add financing structures are increasingly running into difficulty in light of fallen values.
- —By contrast, core logistics assets, food-anchored local retail centres and prime properties in central CBD locations are proving largely resilient to the crisis.
Opposing trends in France and Spain
In France, too, the NPL volume increased by EUR 7.58 billion to EUR 127.80 billion. For commercial real estate loans, the ratio rose moderately from 3.4 to 3.7 per cent, remaining below the European average of 4.1 per cent. Notable maturity risks are emerging in construction projects and institutional real estate investors, where 70.1 and 74 per cent respectively of loans, mostly bullet or floating-rate, mature within the next two years. Anthony Casagrande, founder of Evalio, emphasises that the internationally oriented balance sheets of French banks are still cushioning local distortions, and many problem loans are not yet being brought to the market.
In contrast, Spain successfully continued to reduce non-performing exposures. The Spanish NPL volume fell by EUR 5.70 billion to EUR 68.66 billion, while the commercial loan default rate dropped from 5.4 to 4.3 per cent. At the same time, the coverage ratio improved to 49.15 per cent. José María Gil-Robles, partner at DLA Piper, attributes this to the servicing expertise established by southern European institutions over the past decade, although investors there are currently primarily trading loans near default or post-restructuring.
To date, consensual loan extensions and equity top-ups have dominated the market. Antje Mertig, Managing Partner at Steinberg Real Estate Management, points out that while this tactic has bought time, it cannot resolve structural issues in the face of permanently altered financing costs. Against this background, Javier Meseguer, Chief Revenue Officer at Drooms, expects a gradual and selective revival in transaction activity, as pressure on owners and banks to sell and restructure mounts steadily.
