Real estate bonds will reach 30 billion euros in 2025
Real estate bonds are debt instruments issued by companies in the real estate sector to finance or refinance housing construction projects, shopping centers, or office buildings, as well as to purchase or renovate real estate assets.
Their functioning is similar to that of corporate bonds or other debt instruments. When acquired, the issuer commits to paying periodic interest and repaying the principal amount on the stipulated maturity date. This way, real estate companies obtain capital without diluting shareholder participation, while also improving the company’s liquidity. One of their main advantages is limiting reliance on bank loans, as well as offering better conditions compared to other debt instruments like convertible bonds or swaps. Any company with a real estate asset base, including developers, construction firms, and REITs (SOCIMIs), can issue these types of bonds.
Improvement in the real estate market and bond issuance prospects for 2025
Regarding real estate bonds, optimistic forecasts continue following last year’s upward trend, with expectations that supply will increase to 30 billion euros in 2025, driven by improvements in fixed-income markets and greater activity in real estate, according to ING’s report Real Estate Sector Outlook for 2025. In this regard, supply has exceeded expert expectations, following an upturn in demand in 2024.
Thus, analysts at the Dutch bank foresee continued improvements in bond markets for real estate companies this year, as the sector undergoes a stronger recovery, with interest rate cuts and valuations stabilizing. At the same time, credit metrics are not expected to deteriorate significantly, as risks are now concentrated in specific subsectors (such as office spaces). Additionally, many investors have maintained low exposure to the sector for some time, which could generate additional demand as a viable avenue to increase exposure to bonds with more attractive yields.
However, the real estate sector still faces certain risks, as Europe’s economic slowdown and lower consumer spending may reduce demand, while the already challenged office sector continues to struggle, with rising vacancies in specific regions or markets. Meanwhile, investors will remain cautious about certain parts of the sector, as some companies still need to deleverage and focus on upcoming debt maturities.
Nonetheless, Spain continues to see rising real estate investment. This was highlighted in CBRE’s latest report, Real Estate Investment: Market Data 4Q24, which confirmed a 20% increase compared to the previous year. Investment activity was concentrated in the final months of the year, accounting for 36% of the total annual investment, anticipating an equally dynamic 2025.
Additionally, ING points out other factors expected to drive the recovery of the real estate bond market:
- Increase in transactions. For 2025, a significant rebound is anticipated, with yield stabilization and valuations encouraging investors to seek new opportunities.
- ECB interest rate cuts, boosting investment by lowering financing costs. This is expected to motivate issuers who have remained inactive since early 2022 and have explored alternative financing methods in recent years, including bank loans, capital raising, and asset sales or divestments where feasible.
- The rise of green bonds, which for the first time in 2024 surpassed traditional bonds, with 10.4 billion euros issued compared to 8.4 billion euros. In previous years, green bonds barely accounted for 50% of total issuances. This shift indicates a growing trend toward sustainable financing, partly due to increased environmental concerns and regulatory pressure, which is driving demand for green practices and financing.
Recent bond issuances in the sector
The evolution of real estate bonds in Spain over the past decade supports positive outlooks for 2025, as ongoing transformations in the real estate market continue to inspire both caution and confidence in this type of financing, making it one of the most attractive investment assets in the sector.
Several real estate companies have recently issued bonds to finance their activities. Among them, Colonial, a publicly traded company, successfully placed a 500-million-euro green bond issuance in January 2025 with a five-year maturity. Investor demand exceeded supply by more than eight times, according to the company. The coupon for this issuance is 3.25%, and the proceeds will be used to refinance debt maturing in the coming months.
Also notable is Neinor Homes, which issued 325 million euros in bonds in November of the previous year, aimed at qualified investors with a 5.8% coupon at 100% of its nominal value.
Merlin Properties also announced last year a 100-million-euro expansion of a bond issuance set to mature in September 2029.