Lending terms for prime European office properties were relatively unchanged between the first and second quarters of 2021, according to data from CBRE’s European Debt Map.
The consultancy noted little change in most prime office senior lending markets during Q2. It added that income profile and certainty of tenancy are the attributes that drive the most attractive pricing and terms for borrowers. The data also showed that the clustering of major European markets into cheaper debt pricing – Paris, Frankfurt, Brussels, Amsterdam and Zurich – and more expensive debt pricing – Milan, London, Dublin, Lisbon and Madrid – that had been observed in Q1 remained evident in the second quarter.
The leverage offered by lenders across European office markets was largely unchanged. Loan-to-value ratios were stable in 16 of the markets covered by CBRE, falling in two and rising in just one – Lisbon.
The consultancy also noted lending margins were stable in 16 markets between Q1 and Q2, but had fallen in three: Madrid, Warsaw and Bratislava.
Generally, lending terms were unchanged for the G7 member states that CBRE tracks as part of its data. The only change to terms noted in these markets was a slight increase in the five-year swap rate, causing the total cost of debt to rise marginally in London, from 2.48 percent to 2.49 percent.
In the ‘Rest of West’ group of markets, margins fell for a second consecutive quarter in Madrid, bringing the total drop in margins for the year to date to 50 basis points.
Meanwhile, CBRE’s data showed an improved picture in European prime retail lending markets. “Liquidity is returning to the market, though transactional evidence remains thin,” the consultancy stated. “Supermarket or food anchored retail remains more positive, with traditional shopping centres much more challenged.”
Leverage for prime retail properties was largely stable in Q2, with no change in 15 of the 18 markets covered. CBRE noted that debt funds and alternative lenders are more willing to lend against retail, meaning LTVs are relatively high in certain parts of the market, at commensurate loan margins. However, it also noted margins were largely stable during Q2. The few changes included an increase in the Paris market, which is now only five basis points above Q4 2019 levels, and Madrid, where margins fell for a second consecutive quarter.
In the logistics sector, CBRE said lenders continued to move up the risk curve for core debt. Of the G7 member markets, only Germany saw no change in lending terms. The consultancy noted a clear movement in borrowers’ favour in France, Italy and the UK. LTVs increased in four of the 19 markets covered.
“The weight of money continues to drive best pricing in the logistics sector, as lenders follow investors in increasing exposure to the best-performing sector of recent years,” CBRE said.