CRE in Europe: Where Will Opportunities Arise in 2025?

By Matthew Bailey, Senior Vice President, Loan Asset Management 

After two very difficult years, opinion on the European commercial real estate (CRE) debt market has turned weakly optimistic. So, the pundits say, economic growth is insipid, but at least that will bring inflation down, stabilising policy rates and improving affordability. Covid and Brexit hammered values, but at least that’s in the past, so lender downside risk must have improved. And lenders can only extend and pretend for so long before they force borrowers to go and refinance for real. So surely deals are finally going to increase in number and volume. Right? 

From our perspective at SitusAMC there’s a strong whiff of wishful thinking in this consensus. Lender appetite is still there: competition for business has led to improved terms for higher-quality borrowers – not just lower margins but higher loan-to-value ratios (LTVs) and looser covenants too. And there’s lots of talk from lenders about bulging pipelines. But actual activity is thin, new deals are taking a long time to close, and it seems like every extension option available is still being exercised. 

So where will the opportunities come from? Here’s the outlook for key sectors. 

Built-to-Rent, Logistics and Retail  

Over the last 100 years the typical UK urban tenant has moved from pre-war slums owned by the Church and the aristocracy, to post-war state-funded council housing, to post-Thatcher buy-to-let owned by an army of mini property entrepreneurs, and financed via a deregulated mortgage market. Today there’s the huge “build-to-rent” (BTR) estates provided by (often foreign) institutional investors – who rely on commercial property lenders. The UK BTR market has become a strong source of demand, and with a highly supportive government targeting 1.5 million new homes in five years, further rapid growth seems likely.  

Almost 30% of all UK retail sales now take place online, up from less than 3% when records began in 2006, according to the Office for National Statistics (ONS). While the pandemic gave these figures a temporary boost, the underlying trend has been in place for two decades and shows no sign of reversal, and the logistics sector across Europe continues to attract capital. Demand is likely to be stable, if unspectacular, but we expect there will be deals. 

Old-fashioned bricks-and-mortar retail has also perked up, with Aberdeen suggesting that it was the UK’s best-performing sector in 4Q 2024. Actual deals are hard to discern, but where values lead, lenders tend to follow.  

Student Accommodation and Co-Living  

Young people on the continent increasingly prefer to move out of the parental home for the term of their studies, creating acute mismatches between supply and demand for purpose-built student accommodation (PBSA), and driving up deal volumes. The closely related (and sometimes overlapping) co-living sector has also seen strong growth, especially in Spain, where it seems easier to get planning permission to build these properties than traditional residential assets. Look out for more in 2025. 

Data Centre Demand from AI 

All those students are going to need someone to write their essays for them. The good news for them is that the AI revolution is here – and the good news for lenders is that it’s going to need lots of data centres. JLL estimate that the EMEA data centre market will grow at 25% CAGR through 2027, well ahead of the 15% growth they expect globally. Not all of them will be funded using traditional real estate debt, but the opportunity is obvious. 

A Shift in Lending Activity  

Finally, a couple of things on the lender side of the market.  

Regulators continue to use capital rules to squeeze risk out of bank balance sheets. One result is the creation of the back leverage market, where banks lend on conservative (that is, capital-efficient) terms to non-bank lenders, who make loans to the underlying property owners. We’re seeing a lot more interest in this product from banks, including some potential new entrants, and expect significant new activity. 

And in news breaking just as we go to press, the long-moribund European CMBS market has creaked into life, with two deals announced in mid-March – TABS 2025-CRE-1 and Taurus 2025-2 UK. More remarkably still, neither involves either logistics or Blackstone. Rumour has it that one of them even has some financial covenants. Who’d have thought it? Maybe those wishful thinkers are onto something.   
 

Download our white paper, “Unlocking Potential in Europe: 5 Advantages of Outsourcing Commercial Loan Servicing, Asset Management and Valuation Management,” here For more information on outsourcing services in Europe, contact Lisa Williams at lisawilliams@situsamc.com or Tom Moreton at tommoreton@situsamc.com, or visit our website.