Banks and lenders across the UK and Europe are increasingly engaged in renegotiating loans with landlords amid a sustained slump in commercial real estate values that continues to depress sales activity and valuations. Facing difficulties in offloading properties, owners are pressured to contribute additional equity, accept revised interest rates, and agree to refinancing arrangements, while some seek longer loan terms and relaxed covenant conditions to avoid technical breaches. This cooperative but temporary approach—widely dubbed “extend and pretend” or “delay and pray”—has so far maintained market stability, though industry experts warn its sustainability is limited.

David Eden, managing director at restructuring firm Kroll, which assists lenders in preparing business improvement plans for struggling assets, expressed scepticism about the strategy’s longevity, highlighting that it “cannot carry on indefinitely.” The correction largely stems from rising interest rates, implemented in response to post-pandemic inflation, which have raised borrowing costs and suppressed property valuations. Data from property analysts Green Street reveal that London office values, for example, have plummeted by 37 percent since early 2022, a sharp decline that has effectively frozen transaction volumes globally—down 45 percent between 2022 and 2023 according to MSCI.

Even significant landmark properties have faced setbacks, such as the collapse of a high-profile sale of the City of London’s “Can of Ham” building last December, due to valuation disputes. Although interest rates show tentative signs of descending, market recovery remains tepid. A report by Bayes Business School characterises 2024 as likely delivering only a “modest recovery” from a generally poor 2023 performance across key European markets including the UK and Germany. Against this challenging backdrop, borrowers and lenders—often comprising non-bank lenders and private debt funds—are negotiating loan extensions and revised terms in the hope of a future rebound.

Andrew Antoniades, head of lending at CBRE, described the situation: “The phrase delay and pray has been well used. There is an element of that because sometimes valuations can come back within a quarter. In which case, there is a duty in some sense for a lender not to use these things just to their advantage and default a borrower.” He explained that lenders employ various risk management tactics, including tweaking interest rates, demanding extra equity, or refinancing with alternative lenders, insisting that “there tends to always be the solution.”

Nevertheless, some analysts remain cautious about the approach’s risks. Jess Qureshi of Knight Frank Capital Advisory noted that the scenario today differs from previous downturns largely due to more conservative leverage levels among property owners, which might mitigate the impact of falling valuations. This cautious stance provides some comfort even as prominent London buildings continue to test lenders’ patience and financial resilience.

More broadly, the commercial real estate lending landscape is undergoing significant shifts. In 2023, new lending for commercial properties in the UK fell by 33 percent, reaching its lowest point since 2013, according to a Bayes Business School report. This decline partly reflects lenders’ reluctance to replace repaid debt at previous rates amid low transaction volumes and valuation uncertainties. Many loans—totaling approximately £170 billion—are due for refinancing within the next year, raising concerns about ongoing market stress.

Adding to the strain, an industry report from BTG Advisory in mid-2024 highlighted persistent high interest rates and borrowing costs, along with macroeconomic and political uncertainties, as factors softening transactional activity and banks’ willingness to refinance except for the strongest borrowers. Properties that have adapted to evolving consumer preferences and heightened sustainability standards maintain better access to liquidity, while others face heightened refinancing risks.

The phenomenon of “extend and pretend” has been reaching new heights in volume terms as well. A January 2025 report by CRE Daily found loan modifications in the commercial real estate sector had surpassed $19 billion in 2024 alone. This record underscores the sector’s reliance on postponing loan maturities in the hope of interest rates easing, even as Fitch Ratings forecasts increased maturity defaults and loan modifications into 2025 due to the uncertain economic outlook.

The bank retreat from commercial real estate lending is opening doors for major investment funds. In May 2024, notable funds such as PGIM, LaSalle, Nuveen, M&G, Schroders, and Aviva ramped up their involvement in real estate debt, seizing opportunities created by banks’ pullback amid tighter capital regulations and sector challenges. This trend, often grouped under “shadow banking,” has stirred regulatory concerns over financial stability and transparency.

Meanwhile, the stresses experienced by lenders are evident in the financial results of specialist property lenders as well. For instance, German lender Aareal Bank reported setting aside $478 million in provisions for bad loans in 2023, its largest reserve in decades, reflecting the ongoing difficulties in the U.S. and German commercial real estate markets. Its competitor Deutsche Pfandbriefbank also experienced significant share price declines and a credit rating downgrade, further signalling sector distress.

On the acquisition front, some major players are capitalising on the turmoil. In June 2025, Blackstone expanded its commercial real estate loan portfolio by purchasing nearly $2 billion in loans from Atlantic Union Bankshares, a regional lender. This purchase, done at a discount, allowed the bank to reduce CRE exposure and strengthen its balance sheet while enabling Blackstone to secure high-yield assets amid banks’ retreat from the sector.

In summary, the commercial real estate market remains in a prolonged phase of adjustment, with lenders and borrowers relying heavily on loan extensions and refinancing negotiations to navigate a challenging funding environment marked by elevated interest rates, falling valuations, and cautious transaction activity. While this cooperative approach has stabilised the market for now, experts caution that its indefinite continuation is doubtful, particularly as refinancing risks escalate and uncertainty prevails over the pace and robustness of any sustained recovery.

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Source: Noah Wire Services