Navigating the 2026 European Real Estate Market
- Fracct
- Dec 22, 2025
- 2 min read
As we approach 2026, the European real estate market is shifting from resilience to cautious optimism. While 2025 was defined by stabilization, the coming year will be defined by execution. For sophisticated investors, the primary story is no longer just about interest rates—it is about the liquidity gap and the critical role of agile, short-term bridge financing.
1. The €74B "Refinancing Wall"
The most significant driver for the bridge lending market in 2026 is the growing shortfall between maturing legacy debt and available bank capital.
The Opportunity: An estimated €74 billion debt funding gap exists for the 2026–2028 period across 20 European markets.
Why it Matters: As lenders push for refinancings, bridge financing provides the necessary "gap" capital for assets to reach their next stable phase or successful exit.
2. The UK’s Record-Breaking Bridging Momentum
The UK specialist lending market has reached historic levels, acting as a vital stopgap as traditional financing routes remains cautious.
Record Volumes: The UK bridging loan book hit a record £10.3 billion in late 2024 and maintained strong demand into 2025.
Shift in Demand: New loan applications rose to £11.3 billion in early 2025, driven by time-sensitive transactions and refurbishments that traditional banks cannot support.
Source: Global Banking & Finance: UK Bridging Hits Record £10.3B
3. Institutional Pivot to Private Credit
Non-bank lenders are capturing a dominant share of the global capital stack as investors seek higher-yield, asset-backed opportunities.
European Growth: Funds targeting Europe captured 46% of all global private credit fundraising in Q1–Q3 2025, nearly double their 2024 share.
Strategic Shift: 81% of institutional investors plan to maintain or increase their allocations to private credit, with asset-backed lending forecast as a top growth strategy. Source: Preqin: Private Credit Trends 2025 and Beyond
4. A Rebound in Transaction Activity
Market liquidity is returning as the bid-ask spread narrows and pricing for prime assets firms up.
Projected Volumes: European investment volumes are on track for €215 billion in 2025, with a further 18% rise forecast for 2026.
Focus on Prime: A "flight to quality" remains evident, with nearly 75% of leasing and significant capital concentrated in prime CBD locations.
Source: Savills: European Investment Preliminary Results & 2026 Forecast
5. The Rise of "Non-Plain-Vanilla" Strategies
Increased competition in the prime segment is shifting lender appetite toward more complex, value-add strategies.
Alternative Approaches: There is a growing appetite for bridge-to-sell loans, development financing, and lease-up strategies.
Flexibility is Key: Modern financing is moving toward more structured and resilient models tailored to navigate ongoing macroeconomic uncertainty.
