Banks Increase CRE Lending Appetite. Rising confidence across CEE

Banks across Central and Eastern Europe have become significantly more willing to finance commercial real estate. According to KPMG’s 16th annual Property Lending Barometer, more than 66% of surveyed bankers expect their real estate loan portfolios to expand in the coming year, signalling a clear improvement in sentiment compared with previous cycles.

The share of banks that view commercial real estate lending as more important than a year ago rose to 36%, up from 25% last year. Differences between individual CEE markets have narrowed, with most countries now treating the segment as a strategically important part of their core business.

Transaction recovery supports lending

The renewed appetite for lending is underpinned by a revival in transaction activity. Investment volumes in CEE commercial real estate reached approximately €7 billion in the first three quarters of the year and are expected to exceed €8.8 billion by year-end. Activity has been driven primarily by developments in the Czech Republic and Poland, with Czech capital maintaining the largest share of regional investments for several consecutive years.

A majority of banks reported an increase in average loan sizes, suggesting a gradual return of larger-ticket transactions alongside continued dominance of smaller deals by number.

Shift toward residential development

When financing new construction, banks across the region are increasingly favouring residential projects over industrial and logistics assets, which previously dominated their focus. In retail, lenders show a clear preference for retail parks rather than large shopping centres. Hotels and resorts attract the least interest, with many banks reporting no appetite for financing such developments at all.

The balance between lending for new construction and completed income-generating assets remains broadly unchanged, although country-specific trends persist, with Bulgaria and Slovakia seeing a higher share of development financing, while Poland and Hungary continue to scale back.

Stable credit conditions and strong portfolios

Despite higher activity, lending conditions across CEE remain largely stable. Most banks reported unchanged interest margins, while more than 40% noted lower margins than a year ago. Requirements related to DSCR, LTV and LTC have not shifted materially, reflecting continued prudence in risk assessment.

Loan portfolio quality remains strong. The regional share of problem-free loans increased to 93%, while minor problem exposures declined further. The Czech Republic stands out with an almost entirely healthy portfolio, whereas Bulgaria and Austria still report comparatively higher levels of non-performing loans.

ESG scrutiny and cautious AI adoption

Environmental, social and governance considerations are increasingly embedded in lending decisions, although the rapid growth in ESG focus seen in earlier years has begun to stabilise. Austria applies the strictest standards, with more than 80% of banks having refused financing due to ESG non-compliance. At the same time, the use of artificial intelligence is expanding cautiously, primarily in productivity and support functions rather than core credit decision-making.

As reported by International Investment experts, the growing willingness of CEE banks to lend to commercial real estate reflects a shift from defensive positioning toward selective growth. With stable credit conditions and resilient portfolios, the environment is becoming more supportive for investors, particularly in residential and ESG-aligned assets where lender appetite is expected to strengthen further.