CAPITAL WATCH: CBRE UK debt prospects forecast

Returns on senior UK commercial real estate debt are forecast to be 3.6% on a gross basis and 3.5% on a risk-adjusted basis at the end of Q1 2015, according to CBRE’s new quarterly forecast, launched earlier this year. They fell in Q1 largely due to an estimated 33 basis point drop in margins exacerbating a 10bps fall in the interest rate used (the five-year swap rate).

Although gross returns are down, they still offer a healthy premium of 240bps over gilts, well above the estimated 130bps 20-year average. CRE senior debt also looks attractive against comparable asset classes, with a premium of 170bps against corporate bonds, 20-90bps on CMBS and 70bps on REIT debt.

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