Europe has the largest debt funding gap (DFG) globally, according to new analysis undertaken by AEW.
The region has the largest DFG on a relative basis, standing at 16% of loan originations, closely followed by the US (14%), with Asia Pacific remaining relatively immune.
Germany and the Nordics exhibit the highest DFGs in Europe at 22% and 18% respectively, with the UK (9%) and southern Europe (11%) best placed.
The DFG for Europe is projected to return to 2024 levels in 2026 after a substantial decline in 2025, attributed to the rebound in 2021 acquisitions and AEW’s assumption of uniform five-year loan maturities.
Office loans are the primary concern across all three regions, followed by multi-family and retail.
Hans Vrensen, head of AEW research and strategy, said: “This is the first time we’ve expanded our DFG analysis to show the extent of the refinancing challenge globally. Europe has the widest gap, closely followed by US with Asia relatively immune. Unsurprisingly the office sector shows the widest gap. This is particularly the case in the US where the post-covid return to work is significantly behind the rest of the world putting pressure on the asset class and restricting appetite for lenders and investors alike.
“With many commentators believing interest rates have peaked and some early confidence returning to the market, 2024 will be a critical year for real estate globally. In the end, the scale of the DFG challenge and its impact on local markets ultimately depends on investors and lenders’ ability to cure associated defaults and absorb potential losses.”
