New publication explains why NPLs, refinancing pressure and fund outflows must be assessed on a case-by-case basis
Expiring financing, more difficult refinancing and outflows of capital from funds are increasing the pressure to act on parts of the German property market. At the same time, the debate over a possible rise in non-performing loans (NPLs) is gaining momentum once again. But what does this actually mean for property values?
In its new publication, ‘When selling pressure reveals prices – What NPLs, refinancing and fund outflows mean for property values’, Avison Young Valuation explains why rising selling pressure does not automatically equate to distress at the property level, and why sales of viable properties under financial pressure in particular can create important new valuation benchmarks for the market.
From a property valuation perspective, focusing solely on NPL ratios is insufficient. A loan can become non-performing even though the underlying property continues to generate stable cash flows. Conversely, a property may have significant economic or structural problems even though the loan is still being serviced in accordance with the terms of the agreement. The crucial question, therefore, is what is actually under pressure: the property, the financing, the owner or the investment vehicle.
“The key question for us as valuers is not: Was a transaction concluded under pressure? But rather: Where did this pressure come from, and what impact did it actually have on the price achieved? A well-let and economically viable property does not automatically become a distressed asset simply because, for example, a loan is maturing or a fund needs to raise liquidity,” says Dmitry Stul MRICS, Managing Director of Avison Young Valuation Germany GmbH. “It is precisely such sales that can be particularly revealing for the market, as they highlight price levels that had previously hardly been tested due to a lack of transactions.”
Financing pressure does not automatically mean a loss of credit
Recent data also shows that rising NPL figures do not equate one-to-one with realised losses. According to vdpExpertise, the loss ratio for loans secured against commercial property in Germany stood at just 0.11 per cent in 2025, which is below the European average of 0.29 per cent.
At the same time, selling pressure is mounting in some parts of the market. According to a recent JLL analysis, 93 per cent of the sales volume analysed in open-ended property funds was driven by financial pressure, primarily due to outflows of funds and liquidity requirements, and not necessarily because of problems with the properties sold.
Four scenarios for valuation
In order to assess the varying impacts on property values, Avison Young identifies four basic scenarios in the publication. Two factors are key here: the property’s economic viability and the pressure on owners or lenders to take action.
In the case of a functioning asset where there is no immediate need for action, values may appear relatively stable, even though there is a lack of recent transactions to serve as market evidence. The absence of a sale is therefore not automatically evidence of value stability.
By contrast, assets that are performing well but under pressure to sell are particularly relevant to current pricing. For example, if a financing arrangement is coming to an end, there is a shortfall in equity capital, or a fund needs to raise liquidity due to outflows, a sale may become necessary even though the property itself is performing well financially. If such a property is properly prepared and marketed to a sufficiently broad audience, the price achieved can serve as a reliable indicator of market value.
Alongside these are distressed properties where there is no immediate need for action, and where factors such as vacancy, high investment requirements, short-term tenancy agreements or the need for energy-efficiency upgrades determine their value performance. Where such property-specific issues are compounded by acute pressure to raise capital or sell, the fourth scenario arises: liquidity distress. Here, the downside risk is particularly high; at the same time, the prices achieved are only to a limited extent transferable to other properties due to the interplay of various risk factors.
“The second scenario is of particular interest to the market: a functioning asset comes onto the market due to its capital or ownership structure. The resulting price may, for the first time, reveal what buyers are actually prepared to pay under current financing and return conditions,” explains Robert Becker, Managing Director of Avison Young Valuation Germany GmbH. “This may initially trigger further value adjustments. At the same time, however, price discovery also creates the conditions for buyers and sellers to find common ground again, for new business plans to become viable, and for market liquidity to increase.”
New transactions can also affect the value of unsold properties
Consequently, sales carried out under increased pressure to act can have repercussions extending far beyond the specific property being traded. When new price levels become apparent, comparable properties – even those not currently on the market – must also be assessed against these market indicators. In this case, the valuation adjustment does not necessarily arise because the quality or cash flow of the building has deteriorated, but because the market is, for the first time, providing a current price for the relevant risk and return profile.
However, this mechanism can take on a life of its own: lower transaction prices can lead to lower valuations and higher loan-to-value ratios, making refinancing more difficult and thereby creating additional selling pressure. Conversely, adjusted prices can attract new groups of buyers, thereby increasing transaction activity and liquidity.
From Avison Young’s perspective, this makes a detailed analysis of individual transactions all the more important. In addition to the property’s financial situation, factors such as the reason for the sale, the duration and scope of the marketing campaign, the number of serious bids, and existing capital expenditure, letting and financing risks must be taken into account.
“Sales pressure is not a blanket valuation discount,” emphasises Stul. “The valuer’s task is to correctly contextualise new transactions and draw reliable conclusions from them regarding those properties that have not been sold. A price realised in a distress situation can be a very important piece of market evidence, but only if one understands what was actually distressed in that situation.”
From Avison Young’s perspective, the German property market therefore does not necessarily need a wave of NPLs to reach new valuation levels. What is crucial is robust transactions and a nuanced process of price discovery. Increasing pressure to act can help to reveal price levels that have not yet been thoroughly tested and enable new, viable business plans. At the same time, prices set by individual seller groups or for particularly distressed assets must not be applied across the board to the market as a whole.
