21 March, 2019

This blog looks at how the cost of debt changed across Europe during 2018.

The cost of borrowing fell in most European countries in 2018, the latest information from CBRE’s European Debt Map confirms. Using terms for senior lending on prime offices as a proxy (the Debt Map also covers retail and logistics lending as well as mezzanine and whole loan), the data shows that:

  • Total cost of debt fell in 14 countries, rising in only six.
  • The average cost of debt across the 20 countries fell from 2.34% to 2.12%.
  • Margins fell in ten countries, rising in five and remaining flat in five.
  • The average margin across the 20 countries fell from 1.82% to 1.67% – accounting for the bulk of the decline in total cost of debt.
  • Swap rates fell in 17 countries, rising in three.


Commercial Property Lending Terms in 2018 A Retrospective_graph 1

Senior debt on prime office property is extremely affordable – as Figure 2 shows:

  • The total cost of debt in France and Germany is just 1.30%, given a margin of 1.00%, swap rate of 0.20% and arrangement fee (spread over five years) of 0.5%.
  • The UK has a far higher total cost of debt, at 2.92%, thanks to much a higher swap rate (1.30%) and somewhat higher margin (1.50%).
  • Of the remaining Western European and Scandinavian markets, only Norway, Portugal and Italy have a total cost of debt in excess of 2.25%.

Commercial Property Lending Terms in 2018 A Retrospective_graph 2

A key feature of 2018 was the easing of senior lending terms in the second tier of western European markets (i.e. not the G7 members France, Germany, Italy and UK). Figure 1 showed that this “Rest of the West” group saw the biggest decline in average margins (30bps) and total cost of debt (42bps). Figure 3 plots LTV, margin and total cost of debt in these seven countries; credit conditions eased generally over 2018 – particularly in Ireland, Netherlands, Spain and Switzerland.

Commercial Property Lending Terms in 2018 A Retrospective_graph 3

Away from offices, the debt market has responded to uncertainty in the retail sector. Typical senior lending terms adjusted over 2018, often in response to conditions in the underlying property market. In particular, where prime yields have risen, there has typically been a compensatory response in the debt market.

In the UK, LTVs have fallen from 60% to 50% and margins risen from 1.75% to 2.25% in response to a 10bos rise in London shopping centre yields. A similar increase in yields in Italy has seen margins rise 25bps (with LTVs staying flat). In France however the response to a more significant (25bps) in property yields has been somewhat contradictory, with debt terms actually hardening.

Commercial Property Lending Terms in 2018 A Retrospective_graph 4