7th edition of the study “The French Professional Real Estate Financing Market”

This decline is more significant in 2024 due, on the one hand, to the crisis in residential real estate development across the country, and, on the other hand, to the lengthening of the execution time for institutional investment transactions.

However, financing is still available for the years 2025 and beyond and financiers continue to support borrowers on operations that take longer.

Certain signals, notably increased competition between lenders for good files, indicate that financing players are ready to follow the recovery that is still awaited and certain market developments are emerging: more competition between lenders; improvement in the liquidity of debt funds; evolution of banks' intervention models...

Since 2019, the Institut de l'Épargne Immobilière et Foncière (IEIF) has carried out an annual market study on the French professional real estate financing market, in strategic partnership with IFPImm.

After seven years of existence, this study has established itself as the benchmark tool for deciphering changes in real estate financing for professionals. The panel of contributors includes a diverse range of profiles: financing and investment banks, retail banks, debt funds, and insurers. This study is also sponsored by several major companies and professional associations in the real estate sector, to which the IEIF would like to thank.

2024: sharp decline in credit production, slight decrease in outstanding amounts

For this 7th edition, the study is based on a particularly representative sample of 25 contributors totaling €105 billion in outstanding loans and €23 billion in production. While outstanding loans are down slightly (-3%), for the first time since the launch of the study, the decline in credit production is accentuated: -22% in 2024, after -13% in 2022 and -11% in 2023. This is explained by a sharp decline in real estate development financing, which fell by -27%, continuing a negative trajectory for the past three years. Asset & corporate financing also fell by -17%.

The refinancing cycle continues and bankers are showing more enthusiasm for large projects

Refinancing remains central: it represents 46% of volumes produced in 2024, with bankers spending 60 to 80% of their time on this type of file. This cycle is expected to continue, with a peak in debt maturing in 2026 (€12 billion, or 17% of active & corporate outstandings).

For Christopher Puyraimond, Senior Analyst at IEIF: "By 2025, we expect lenders to spend 50-60% of their business on refinancing. These amounts should be managed and absorbed, giving sponsors time to complete the processing of these transactions."

Among banks, the "originate to distribute" model is gaining ground, with average ticket sizes remaining stable at €65 million. Debt funds are targeting large-scale transactions while maintaining moderate exposures.

Trends in the asset finance market reflect investors' appetite for the most attractive asset classes: with a decline in offices (outside of prime locations) and a marked interest in logistics assets, retail having adopted new market standards and those around residential and hospitality in the broad sense, and certain emerging niches such as data centers or assets linked to reindustrialization.

The share of office space is increasing in 2024 production, despite its decline in portfolios. This increase can be explained by the importance of refinancing.

• In terms of office space, there is a marked difference. The peripheral markets of the Paris region are struggling to regain their balance, La Défense is repositioning itself, and prime Parisian office space remains highly sought after.
• Other asset classes that are attracting attention include logistics, residential, hospitality, managed student residences, data centers, and industrial assets, the latter assets straddling the gap between real estate and infrastructure financing.

The real estate development sector remains in deep crisis. Sales are stagnating at historically low levels, and the financing cycle dedicated to real estate development is lengthening (ratio between outstandings and production at 3,5x in 2024 compared to 2,4x in 2022). Only secured transactions—via block sales and higher levels of pre-sales to individuals on the remaining non-block basis—are obtaining financing.

The IEIF does not anticipate a resumption of real estate development before 2027, given a busy electoral calendar and a slow flow of projects.

ESG: between ambitions, constraints and selectivity, ESG remains a very important dimension in France and Europe

The implementation process continues, but stakeholders are expressing the need for more transparent standards. In Europe, despite a slight shift, ESG remains a key focus, supported by the ECB and integrated into the analysis criteria.

"The question now is: should you be 'best-in-class' or simply a good student?" asks Denis Moscovici, Senior Advisor at IEIF.

Outlook for 2025 and beyond: no significant rebound expected unless the major transaction operations launched on the market are concluded under good conditions; we are seeing a return of competition between establishments on certain types of files

"Without major geopolitical uncertainties, the market could begin a rebound... but risks are still holding back the recovery," analyzes Denis Moscovici.

Lenders are being selective, but very active on the best files. Margins are falling again on these transactions and LTV/LTC are rising slightly (60–65%). The “amend & extend” strategy[1] remains preferred to avoid forced sales of files that take time to come out.

Debt funds and insurers should be more present from 2025

Debt funds and insurers are gradually regaining their position, while new structures are emerging (back leverage[2], bank-insurer co-intervention) and large international funds are able to intervene, in both equity and debt.

Transformation and restructuring operations involving existing assets (particularly obsolete offices) are attracting increasing interest and are analyzed on a case-by-case basis. While lenders are not intended to finance land at risk of building permits or PLUs, they are able to analyze the risk to be taken in detail based on each case.

For Denis Moscovici: "Good news: while two years ago, when interest rates began to rise, we were questioning the strength of the market, lenders have demonstrated their ability to absorb shocks and financing remains available; this is a signal that lenders will support the recovery even if it is slow in coming."

Illustrative image of the article via Depositphotos.com.