The German real estate industry continues to be in a phase of profound transformation. After initially focusing primarily on larger project developers and builders, economic pressure is now increasingly impacting property holders, special purpose vehicles, fit-out companies, technical building service providers, and other players along the real estate value chain. This shift in those affected reflects a structural reordering manifesting in various market segments.
Parallel to this development, an increase in transaction volume can be observed. Alternative financiers are expanding their market position, and institutional investors are making selective investments in real estate, loans, and operational platforms. These seemingly contradictory movements can be explained by a crucial change in the capital market: although capital is generally available, it is no longer provided for unresolved risks, outdated valuations, or unfunded future tasks. A more precise risk assessment and stricter capital allocation are the consequences.
Insolvency events in Germany underscore the ongoing strain. In 2025, a total of 24,064 corporate insolvencies were registered, representing an increase of 10.3 percent compared to the previous year. From January to May 2026, an additional 10,546 cases were added, a plus of 4.9 percent compared to the same period last year. A broad FalkenSteg analysis also shows an increase in real estate and building-related insolvencies by 13.5 percent to 554 cases in the first quarter of 2026 compared to the previous quarter. While the 'Construction of real estate' category stagnated with 243 proceedings, the number in the 'Buildings' category – including fit-out trades and building service providers – increased by 24.9 percent to 311 cases. This illustrates a chain reaction: halted developments and postponed investments lead, with a time lag, to declines in orders and liquidity for downstream companies.
Despite the recovery of the investment market, with a volume of approximately EUR 17.6 billion in the first half of 2026 – about 15 percent more than in the same period last year – market recovery remains selective. JLL points out that numerous sales processes fail to conclude due to diverging price expectations between buyers and sellers. Price development also varies significantly by asset class. According to the German Bundesbank, prices for office properties decreased by 1.2 percent year-on-year in the second quarter of 2026, while multi-family homes recorded a price increase of 1.6 percent. Across all commercial property types covered by the index, there was only a slight increase of 0.4 percent, which rules out a general recovery and rather signals a quality, usage, and object-specific reordering of the market.
A significant burden is maturing financings. BaFin quantified the volume of commercial real estate loans due for refinancing in 2025 and 2026 at approximately EUR 100 billion. Given that at the end of 2024, over half of the outstanding loan volume was still equipped with interest rates below three percent, historically high loan amounts meet altered market conditions during refinancing. These include more cautiously determined current market values, higher financing costs, lower loan-to-value ratios, additional investment needs, and stricter requirements for cash flow, collateral, and equity.
The BF.Quartalsbarometer for the second quarter of 2026 shows an average loan-to-value of 64.2 percent for existing properties and a loan-to-cost of 66.3 percent for project developments across all asset classes. An exemplary case clarifies the implications: For a property value of EUR 100 million and a loan to be repaid of EUR 75 million, a new financing of 64.2 percent of the value would only cover EUR 64.2 million. This results in a financing gap of EUR 10.8 million, even before considering financing costs, reserves, or modernisation measures. An economically viable property can thus fail due to its capital structure.
Furthermore, significant regulations from the European implementation of the final Basel III package via CRR III have been in effect since 1 January 2025. The so-called output floor limits the reduction in capital requirements that banks can calculate with internal models compared to the standard approach. This regulation, which is being introduced gradually, impacts at the institutional level and influences banks' lending decisions. Particularly for Acquisition, Development, and Construction (ADC) financings, the standard approach provides a risk weight of 150 percent, whereas qualified residential financings can be weighted at 100 percent under certain conditions. A risk weight of 150 percent increases the risk-weighted assets, to which the regulatory capital requirements are then applied, which in practice leads to more stringent scrutiny of sponsor creditworthiness and actual equity capitalisation.
