CBRE: UK property debt’s premium over fixed income narrows

The margin gap has contracted due to a rise in corporate bond spreads during Q1 2018.

The premium of UK senior commercial property debt over fixed income narrowed in Q1 2018, according to data from CBRE.

Although the asset class still offers a premium of 2.7 percent to Gilts, the premium to corporate bonds has narrowed from 2 percent in Q4 2017 to 1.8 percent in Q1 2018, given the rise in corporate bond spreads over the first quarter.

The gross return of UK senior commercial property debt stands currently at 3.7 percent, up from 3.4 percent in Q4 2017. On a risk-adjusted basis, CBRE forecasts a return of 3.3 percent.

While commercial real estate lending margins remained flat at 2.2 percent, interest rates and Gilt yields rose by circa 30 basis points over Q1 2018.

SHARE