The prolonged downturn in the U.S. office market is beginning to ripple through Europe’s financial sector, with two major German property lenders reporting weaker results for 2025 and reassessing their exposure to American commercial real estate.
Both Deutsche Pfandbriefbank and Aareal Bank cited the sharp slowdown in the U.S. office sector — marked by rising vacancies and falling property values — as a key factor behind their declining profits.
Deutsche Pfandbriefbank Posts Net Loss
Munich-based Deutsche Pfandbriefbank, often referred to as PBB, reported a net loss of €284 million ($329 million) for 2025, compared with a profit of €90 million in 2024.
The lender has been significantly exposed to the U.S. commercial property market, particularly office buildings that have struggled to recover following pandemic-era shifts toward remote and hybrid work.
In response, the bank has begun withdrawing from the U.S. market, reflecting growing concerns about long-term demand for office space.
The bank had already warned earlier that it might miss key financial targets set for 2027, pointing to ongoing weakness in global commercial property markets.
Aareal Bank Cuts U.S. Exposure
Meanwhile, Aareal Bank reported a 23% decline in net profit, which fell to €137 million in 2025, down from €179 million in 2024.
The Wiesbaden-based lender said it plans to scale back lending to U.S. office properties faster than initially planned, as the sector continues to struggle.
“We will remain active there but want to reduce U.S. office property loans faster than originally planned,” said Christian Ricken, CEO of Aareal Bank.
The bank also revealed that $1.1 billion in non-performing loans were tied primarily to U.S. office assets, highlighting the severity of the sector’s stress.
To manage potential risks, Aareal took additional charges of €55 million during the year.
U.S. Office Market Remains Under Pressure
The challenges facing European lenders reflect a broader crisis unfolding in the United States office sector.
Office buildings across major U.S. cities have struggled with record vacancy levels, as many companies continue to adopt flexible work models introduced during the COVID-19 pandemic.
Higher interest rates and declining valuations have also made refinancing office properties more difficult, increasing the risk of loan defaults.
As a result, banks and investors with exposure to U.S. commercial real estate are increasingly reviewing their portfolios and tightening lending standards.
European Banks Turn Focus Back to Domestic Markets
With risks rising overseas, German property lenders are now shifting their focus toward European markets, where office demand has remained relatively more stable.
Both Deutsche Pfandbriefbank and Aareal Bank signalled that they will adopt more cautious lending strategies going forward.
“In the face of heightened geopolitical and macroeconomic uncertainty, Aareal Bank will continue to pursue a cautious and prudent risk policy,” the lender said in a statement.
Global Real Estate Markets Feel the Impact
The situation highlights how interconnected global real estate markets have become. Weakness in one region — particularly a major market like the United States — can quickly affect lenders, investors and developers worldwide.
For now, the struggles of the U.S. office sector are forcing European banks to rethink their global lending strategies and reassess how much risk they are willing to carry in commercial property markets abroad.
