German Commercial Property Debt Faces Quiet Restructuring, Not a Fire Sale
Investors hoping that German banks would unload their troubled property loans in large, discounted portfolios have been kept waiting. Data room provider Drooms traced the problem to commercial real estate finance in its analysis of Europe’s NPL market in 2026, published on Sept. 3. Loans written when money was cheap faced costlier refinancing, lower collateral values and business plans that no longer added up. Germany’s lenders are dealing with them through restructurings and one-off transactions, without a wave of portfolio sales. Some are even lining up sales before the loans in question formally become non-performing.
Drooms found that banks and borrowers have mostly chosen to extend and rework loans. An extension can spare a borrower a forced sale into a weak market. It can also save a lender from booking a loss at a low point in the cycle while property values have time to recover.
Lenders Extend and Rework
KPMG reached a similar view in its NPL Market Monitor, a report on German commercial property published in August 2026. The accounting firm found the difficulties confined to certain parts of the market and not yet present across whole loan books. Rising funding costs, softer valuations and a queue of maturing loans were straining many deals. Even so, investors traded few German commercial property NPLs, and banks kept adding to their monitoring and workout teams.
Speakers at a Drooms market briefing in March 2026 described the same standoff as a game of repeated extensions between banks and borrowers, one that was keeping distressed property off the market, even though European Banking Authority data cited at the briefing showed that German lenders held the largest non-performing exposure to commercial real estate in Europe. The gap between what buyers would pay and what sellers would accept remained the biggest obstacle to deals, according to a CBRE survey of 900 European investors discussed at the same event. CBRE’s base case in March put German investment for 2026 at €35 billion to €40 billion, well short of the market’s former peak of around €100 billion.
Refinancing dates were piling up, however, Drooms noted in September, and German banks had begun to set aside slightly less against each non-performing loan. Sooner or later a lender with a stressed loan must roll it over once more, enforce on the property or sell the debt. Every loan that reaches that point adds to the eventual supply of assets.
Discipline Over Discount
Drooms expects that supply to arrive in small pieces. Smaller portfolios, single loans and trades between credit investors look more likely than a large clearing sale. European secondary NPL deals have already shrunk sharply, to about €15 billion in 2024 from roughly €76 billion in 2023 and €150 billion in 2021. Transactions of that size make due diligence harder. A buyer reviewing one loan or one building depends on complete files, reliable data on the borrower and the property, and a quick review process.
Bargain hunters may find the discounts thinner than they hoped. A lender that has already extended a loan several times has little incentive to accept a steep loss when it finally sells. Much of the return therefore has to come after the purchase. Buyers that can re-let empty space, fund necessary upgrades and manage tenants closely have more room to succeed than those relying on the entry price, and the difference often comes down to the operating work that turns a discounted building into a performing one.
Credit Returns, but Selectively
The 40 members of the Association of German Pfandbrief Banks wrote €30.3 billion of new commercial property loans in the first half of 2026, compared with €26.5 billion a year earlier, REFIRE reported. The association still described the level as low by historical standards. Offices took €14.8 billion of the total. Retail lending jumped 40.6% to €9 billion.
The headline figures overstate the fresh money, since some banks include renewals and extensions in their new business. At one of the largest specialist lenders, the average loan-to-value ratio on new loans fell to 55% from 57% in 2025 while its average margin rose, so that bank grew its business without lending more against each property. Across the sector, banks chased well-capitalised deals, experienced sponsors and the property types they had picked for expansion. Borrowers with secondary offices, complex development projects or heavy debt loads struggled to raise finance.
The RICS net balance for German lending conditions dropped from minus 42% in the first quarter of 2026 to minus 70% in the second, its weakest German reading on record, REFIRE noted. Total lending can grow even as most borrowers find credit harder to get, and the buildings left outside the banks’ shortlist are likely to change hands as the restructuring works through.
