Challenges for Real Estate Investment Financing in 2025
The real estate investment landscape in 2025 presents several challenges, particularly regarding sustainability requirements and compliance with evolving ESG (Environmental, Social, and Governance) standards. These challenges are no longer optional but are becoming legally binding, driven by regulations such as the Corporate Sustainability Reporting Directive (CSRD) and its incorporation into national laws.
“In both the US and Europe, environmental considerations in real estate projects are increasingly pivotal, shaped by regulatory frameworks and growing client expectations,” notes Dr. Jan Gąsiorowski, Senior Associate at the Warsaw office of Wolf Theiss. “The EU Taxonomy Regulation and the Sustainable Finance Disclosure Regulation have fundamentally reshaped how financial institutions approach real estate financing.”
The Polish real estate market faces unique hurdles, especially with aging buildings. Upgrading these properties to meet new ESG standards and ensuring compliance for new developments impose significant financial strains. Starting in 2025, the Electromobility and Fuels Act in Poland will require buildings with more than 20 parking spaces to include a minimum number of charging points. Additionally, increased scrutiny on carbon footprints, including those of construction materials, is expected. The introduction of energy efficiency classifications for buildings will add to these financial pressures.
“All these factors are driving up initial investment costs,” Dr. Gąsiorowski explains. “Energy-efficient technologies, renewable energy solutions, and waste management systems significantly increase project expenses. Yet, non-compliance with ESG standards poses even greater risks, such as difficulties in securing financing or higher borrowing costs. Some foreign financial institutions have already announced plans to halt funding for projects that fail to meet minimum environmental standards.”
Investors and developers are also under growing societal pressure. Tenants are increasingly prioritizing environmentally sustainable spaces due to personal values and the nature of their businesses. According to Cushman & Wakefield’s study, Rethinking European Offices 2030: Risks and Opportunities from Obsolescence, a shift is occurring across Europe, with tenants seeking premium office spaces in city centers that align with modern sustainability standards.
“The risk of older properties becoming obsolete is rising, particularly for those not upgraded to meet current standards,” warns Dr. Gąsiorowski. “This growing risk contributes to discussions about a potential ‘carbon bubble’ in the real estate market.”
A carbon bubble refers to the overvaluation of properties that fail to account for ESG transition risks. Such properties could experience sharp value declines, leading to rental market disruptions. Cushman & Wakefield’s data highlights that up to 76% of European office buildings could become obsolete by 2030 unless significant investments are made in modernization or repurposing.
Poland may eventually follow Western economies in introducing tax incentives, subsidies, and other support mechanisms to encourage green building initiatives. In more developed markets, such policies have spurred adoption of sustainable practices, which could serve as a model for Poland to meet market demands and regulatory expectations.
In addition to ESG challenges, 2025 brings financial pressures from the European Central Bank’s decision to maintain higher interest rates. “Financing costs are now 150-200 basis points higher than developers were accustomed to just two years ago,” observes Dr. Gąsiorowski.
The office sector faces further uncertainty due to the rise of remote work. Many tenants, as their leases expire, are downsizing. Cushman & Wakefield reports that average leased office spaces in Warsaw have shrunk to around 900 sqm, compared to 1,000-1,200 sqm in 2017-2019.
Despite these challenges, Poland’s real estate market remains resilient, particularly in the ESG-compliant segment. “The key to success will lie in strategic planning that aligns regulatory compliance with financial objectives and capitalizes on public support mechanisms,” Dr. Gąsiorowski concludes.
Transaction data from BNP Paribas Real Estate Poland supports this optimism. Between January and September 2024, the Polish commercial real estate market recorded transactions worth over €2.68 billion, marking a 57% year-on-year increase.
“Poland’s market foundations remain strong,” affirms Dr. Gąsiorowski. “Those who adapt proactively to new regulatory demands will emerge as market leaders in the years ahead.”
Source: Wolf Theiss
Photo: Dr. Jan Gąsiorowski, Senior Associate at the Warsaw office of Wolf Theiss
