Real estate financing in transition: From shock-paralysis to strategic renewal 

Markets collapsed while interest rates soared. As a result, real estate lost its appeal as an asset class and numerous project developments failed, even though land had already been purchased. Between 2021 and early 2024, transaction volumes declined significantly.  Consequently, real estate values also fell. Many investors were forced to sell properties to secure liquidity. High financing costs, a wave of insolvencies, falling valuations, and restrictive lending practices brought the market to a virtual standstill.  

 In the meantime, however, a cautious recovery is emerging. Target interest rates of around two percent and interest rate adjustments that have already been implemented are creating new planning security. By mid-2025, the mood among German real estate financiers brightened noticeably: the Difi real estate financing index compiled by JLL and the Hamburg WeltWirtschaftsInstitut (HWWI) rose by 5.4 points to 10.5 in the second quarter, largely offsetting the decline in the previous quarter. The index is still slightly below the level of the fourth quarter of 2024 (13.6 points), which remains its highest level since the beginning of 2016.

Political impulses as a driver of economic stability  

A decisive turning point was the political realignment. The formation of a new federal government provided new impetus for economic decision-making processes. The announcement of measures to ease the burden on businesses and improve economic predictability are among the key signals sent by the new government. The introduction of a comprehensive special fund to strengthen key areas further boosted market confidence. At the same time, inflation began to ease gradually, leading to more reliable conditions for lending and financing.  

Political stability, economic relief, and a more predictable monetary policy are creating new prospects for the real estate financing market. Market participants are showing a noticeably more optimistic than in 2023 and 2024, as pricing and the interest rate environment provide more clarity. 

Sustainability as the key to market recovery 

At the same time, sustainability has become a central issue. ESG (environmental, social, governance) is no longer a term that needs to be explained to investors and tenants, but rather an integral part of future-oriented investment strategies, including at ING. Taxonomy-compliant properties, on the other hand, command top rents and high demand. 

For banks, this means that they are no longer just capital providers but are evolving into strategic partners in the transformation. Cross-sector expertise combined with a deep understanding of the real estate cycle is crucial. Green loans, sustainability-linked loans, and ESG-compliant project structures are becoming increasingly important.  

Shaping transformation

ING's portfolio management, valuation, and ESG teams are based locally, but have an extensive global network. Only those who can provide cross-border advice and structuring with expertise can become strong and reliable partners in banking. 

This is particularly evident in the close cooperation with industries such as renewable technologies and energy supply. Such collaborations enable holistic financing solutions that significantly outperform traditional models. ESG is not an end in itself but a strategic lever for sustainable business models. It is crucial to design a transparent and effective transformation path that encompasses both the asset level and corporate strategy.  

Persisting in change: Outlook for a resilient future  

The ZIA study examines potential development paths for the real estate industry until 2035 based on seven scenarios that depict different future prospects. 

It becomes clear that the industry is facing fundamental structural change. Dealing with uncertainty has become more professional, and ESG criteria are increasingly becoming a strategic focus. Companies that integrate sustainability, digitalization, and social aspects into their business models and respond flexibly to changing conditions are better able to adapt to long-term developments. The scenarios therefore not only provide guidance for the possible future, but also a basis for strategic planning and early adaptation - with the aim of making the real estate sector resilient and sustainable by 2050. 

Society is transitioning to a low-carbon economy. So are our clients, and so is ING. We finance a lot of sustainable activities, but we still finance more that’s not. See how we’re progressing on Opens in a new tabing.com/climate.