In brief
European real estate markets are recovering, but capital is becoming more selective. Financing increasingly depends on asset quality, business-plan credibility and regulatory resilience. Four shifts are shaping the market: sharper differentiation by asset quality, a move from rental income to exit-led value creation in Dutch residential portfolios, greater emphasis on certainty in tax and legal structuring, and the integration of ESG into mainstream credit decisions.1
Key takeaways
- Capital is returning, but lenders and investors are differentiating more sharply between prime, future-proof assets and secondary properties with reletting, capital expenditure or sustainability risks.
- In the Dutch residential market, unit sales and other exit strategies are playing a larger role in value creation, requiring financing structures that support phased disposals.
- Tax and legal structuring is shifting toward robust, defensible arrangements that provide long-term certainty under closer regulatory scrutiny.
- ESG performance and credible transition plans increasingly affect valuations, lending terms, capital expenditure requirements, and refinancing prospects.
In more detail
After several challenging years of rising interest rates, lower valuations and subdued transaction activity, European real estate markets are beginning to recover. Liquidity is returning across commercial real estate, particularly offices, retail and logistics, as well as residential markets and some specialist pockets. Yet the recovery is revealing a new reality: capital may be available, but it is becoming increasingly selective.
Access to financing now depends less on market momentum alone and more on asset quality, the credibility of the business plan, and the ability to navigate an evolving regulatory landscape. Across Europe, lenders and investors are placing greater emphasis on future-proof assets, resilient structures and clear value-creation strategies.
Four shifts are driving this change. Financing decisions are increasingly driven by asset quality and operational resilience. In the Dutch residential market, value creation is moving from rental income towards exit strategies and transaction execution. Tax and legal structuring are becoming less focused on optimization, although optimization continues to play an important role, and more on certainty. ESG considerations are also playing an increasingly important role in determining asset values, financing conditions, and long-term investment prospects.
1. Capital is returning, but becoming more selective
One of the most notable developments is the recovery of the European covered bond market, with German Pfandbriefe once again providing lenders with important access to capital market funding. Issuance volumes have rebounded, and funding conditions have improved, increasing the availability of low-cost capital across the real estate sector. However, access to financing is no longer evenly distributed.
Lenders and investors are paying closer attention to the quality of the underlying collateral. Rather than focusing primarily on pricing, they are scrutinizing asset fundamentals, valuation resilience, transparency and downside protection. The growing importance of mortgage-backed Pfandbriefe has reinforced this trend by strengthening the link between real estate credit quality and access to capital markets funding.
As a result, the gap between prime and secondary assets continues to widen. Well-located, future-proof properties remain attractive to lenders, while older assets, particularly those facing reletting challenges or significant capital expenditure requirements, are experiencing increasing refinancing pressure. ESG performance is becoming a key differentiator in this assessment and is influencing both financing availability and lending terms.
We expect further differentiation within the office market. Prime, energy-efficient buildings in strong locations are likely to continue attracting investor demand, rental growth, and favorable financing conditions. By contrast, older properties in secondary locations with weaker sustainability credentials may face declining liquidity and growing pressure on values.
Green bond issuance within the covered bond market has also grown significantly as sustainable financing products become more mainstream. At the same time, investors are applying greater scrutiny, looking beyond green labels to assess the ESG quality of the underlying assets and the credibility of the financing framework.
2. Residential value creation is shifting from rental income to exit strategies
A particularly significant development in the Netherlands is the changing economics of residential investment. Value creation is increasingly driven by unit sales rather than long-term rental income. More investors are legally dividing residential buildings into individual apartment rights and selling units separately over time, as individual dwellings often achieve higher values than comparable assets sold as part of a rented portfolio. The trend has been reinforced by expanded rent regulation under the Wet betaalbare huur, restrictions on temporary leases and higher taxation of residential investments. As a result, the sale of individual rental units to owner-occupiers (uitponden) remains one of the dominant exit strategies in the Dutch residential market.
This shift has important financing implications. Sell-down strategies require facility and security structures that can accommodate phased disposals, including release mechanics, mandatory prepayments, and flexible covenant packages. Lenders must therefore assess not only an asset’s income-generating capacity, but also the credibility and operational feasibility of the proposed exit strategy.
With rent indexation now capped by law and increasingly subject to political intervention, underwriting can no longer rely primarily on rental growth assumptions. Financing decisions are becoming more closely linked to transaction execution, disposal strategies, and downside resilience.
3. Structuring is moving from optimization to certainty
The role of tax and legal structuring is also evolving. The Dutch Tax Plan 2026 reflects relative stability in the tax framework, with no major rate changes, as well as a clear trend toward targeted tightening. Leveraged real estate investments are facing greater scrutiny of financing structures and increased attention to interest deductibility limitations. The broader direction is clear: tax structuring is becoming less about optimization and more about creating robust, defensible and sustainable structures that can withstand regulatory scrutiny over time.
The revised Dutch entity classification rules add another layer of complexity, particularly for funds and joint venture structures. The distinction between open and closed FGRs (Fondsen voor Gemene Rekening) has been fundamentally revised, with the analysis now turning less on formal transferability concepts and more on whether participations can be redeemed or transferred without the consent of all participants. As a result, structures that previously produced a particular tax outcome may need to be reassessed.
For sponsors, investors and lenders alike, structuring decisions are becoming more important at the outset of a transaction. Entity classification, financing arrangements, and governance considerations are increasingly being evaluated through the lens of long-term certainty, regulatory resilience, and cross-border consistency.
4. ESG is becoming a core financing criterion
The most significant long-term development may be the growing influence of ESG regulation on financing decisions. The revised Energy Performance of Buildings Directive (EPBD IV) is accelerating the transition towards a zero-emission building stock and is already shaping investment and lending strategies, even as national implementation continues.
Two important milestones are the zero-emission building (ZEB) requirement for new public buildings from 2028 and for all new buildings from 2030. For lenders and investors, ESG considerations now extend well beyond operational energy use. Lifecycle carbon, construction methods, building materials, and future renovation requirements are increasingly factored into underwriting assessments. Consequently, ESG regulation is influencing not only asset values but also capital expenditure planning, development strategies, refinancing prospects, and, ultimately, access to financing itself.
These developments are particularly significant for assets with poor energy performance. Minimum energy performance standards are expected to require the upgrade of lower-rated buildings over time, rather than relying on voluntary improvements. Such measures may range from insulation and low-carbon heating systems to extensive renovation programs for older building stock.
This is prompting lenders to distinguish more sharply between assets with a credible transition pathway and those at risk of becoming stranded because upgrade costs are prohibitive, or financing becomes difficult to obtain. ESG considerations are therefore no longer confined to sustainability specialists; they are increasingly shaping mainstream credit decisions and investment strategy across the real estate sector.
Looking ahead
Taken together, these developments point to a market that is becoming increasingly differentiated. Access to capital depends more than ever on asset quality, the credibility of the business plan, and the ability to respond to evolving regulatory requirements. The most successful strategies will be those that combine strong fundamentals with clear pathways for value creation and long-term resilience. In today’s market, the key question is no longer whether capital is available, but which assets, structures, and business plans are capable of attracting it.
Next steps
For specific advice on how these financing, structuring and ESG developments may affect your real estate strategy or transactions, please contact our Real Estate Practice Group.
1 This article was published in The International Real Estate Finance & Investment Review 2026/27.