26 November, 2020

Office: Lower LTVs and higher margins with a flight to quality

In the prime office senior lending market, amidst a general pattern of LTVs falling and margins and cost of debt rising, a definite ‘flight to quality’ was also evident.

  • LTVs are unchanged in the four G7 member countries, while Milan and London seen slight declines in margins. London has also benefitted from a fall in the five year swap rate.
  • In contrast, margins and total cost of debt rose (typically by 25-35bps or so) in five and LTVs fell (by 2.5pp to 15pp) in all seven of the Rest of West.
  • In the Nordics excluding Stockholm, we judge LTVs to be stable and margins either flat (Copenhagen) or higher (Helsinki and Oslo). Falling swap rates however have pushed the cost of debt down in Oslo.
  • Finally, CEE has seen fairly universal falls in LTV and increases in margins and total cost of debt. Across the five markets, the average LTV fell over 6pp while the average margin and cost of debt rose slightly.

Retail: Much more aggressive fall in LTVs and rise in margins

Turbulence in retail occupational and investment markets has fed through to lending. LTVs have fallen and margins risen – though in some markets a narrowing of the definition of what constitutes prime is responsible for apparently contradictory movements.

  • LTVs are static in three G7 member countries (having already been more modest), while Milan and London record lower margins. This does not indicate renewed confidence in retail lending, rather a narrowing of what each market considers ‘prime’ to the most defensive assets (which thus attract better pricing).
  • In contrast, margins and total cost of debt rose (typically by 20-50bps or so) in five and LTVs fell (by 2.5pp to 15pp) in all seven of the Rest of West.
  • In the Nordics markets excluding Stockholm, we judge LTVs and margins to be flat in Copenhagen. However, both Helsinki and Oslo have seen LTVs fall 5bps and margins rise considerably.
  • Finally, CEE has seen fairly universal falls in LTV and increases in margins and total cost of debt. Across the five markets, the average LTV fell over 6pp while the average margin and cost of debt rose around 20bps.

Logistics: Little change as lender appetite and confidence remains solid

The anti-fragility of the logistics occupational market, coupled with the strength of investment demand, through 2020 has been reflected in resilient lending terms. A majority of markets have seen LTVs at least stable and/or margins level or falling.

  • In the four G7 member countries, Italy and the UK saw margins decline (and UK LTVs rise), while in France and Germany, LTVs and margins were unchanged.
  • LTVs tended to remain static or decline in the Rest of West The movement of margins was more mixed, but where there were rises these were slight. Overall, pricing remained pretty stable.
  • In the Nordics markets excluding Sweden, we judge LTVs and margins to have risen in Norway but to have been essentially flat in Denmark and Finland.
  • Finally, CEE has seen an aggregate decline in LTV of a couple of percentage points, but broad stability in margins, so that these, and the cost of debt, were less than 10bps higher at the end of Q3 2020 than in Q4 2019.

Figure 1: Senior lending terms, three sectors, Q4 2019 and Q3 2020

Source: CBRE Debt Map

For full information on lending terms in individual markets, and for further detailed analysis of market trends, please click here.

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