1 December, 2020

As well as showing detailed pricing and lender risk metrics, and identifying the best opportunities for risk-adjusted returns on the debt side, CBRE’s latest Debt Map also looks at the impact changes in debt terms will have on geared equity returns, showing that in most cases more expensive and/or lower LTV debt is more than offset by stronger forecasts of performance.

Lenders can cherry-pick markets for superior risk-adjusted returns

Figure 1 shows that there is not a uniform relationship between the returns from real estate lending (simplified as margin+fee) and exposure (LTV), or the proportion of return earned by real estate above the risk free. This offers opportunities for lenders able to select sectors and markets.

Figure 1: Senior lending, absolute and proportional returns, Q3 2020

Source: CBRE Debt Map, Q3 2020

Expressing the return real estate debt receives in absolute terms, in relative terms (compared to that which equity receives) and accounting for the level of exposure in a single metric is not easy. Figure 2 attempts to do so by expressing absolute and proportional return relative to LTV on a standard score basis. The scores themselves are not especially meaningful, but their relativities are [Note: the scores are calculated on a sector-by-sector basis, evaluating real estate debt return within but not across office, retail and logistics].

On this basis, some markets stand out as offering above or below par returns. London and Madrid consistently appear attractive to lenders. The reverse is true for Paris, Frankfurt and Amsterdam.

  • In prime office, London is the only G7 member market with a positive score overall. Smaller markets with strong scores include Dublin, Oslo, Warsaw, Lisbon and Madrid.
  • For prime retail, the best scores are achieved by Helsinki, Milan, London, Lisbon and Dublin. Paris and Frankfurt area again weak.
  • In logistics, Finland, Norway, Portugal and the UK score well; Austria, Denmark and Netherlands score poorly.


Figure 2: Senior lending, standard score of absolute and proportional returns, Q3 2020, within three sectors

Source: CBRE Debt Map, Q3 2020

Geared investors see forecast returns enhanced despite slightly more expensive debt

On the equity side, geared investors looking at the December 2020 to December 2025 period should be cheered. Yes, debt has in many instances got a little more expensive, and/or lower LTV, but compared to Q4 2019 forecasts of underlying market performance over the five years are markedly superior. Figure 3 gives the example of offices, but the same broad pattern is true of the retail and logistics sectors too.

  • On average, we expect geared total returns on prime office to be 3.5% per year better than was the case when making forecasts at the end of 2019, despite generally more expensive and lower leverage debt reducing performance expectations by -0.7% per year.
  • Across the 19 markets covered, ungeared total returns have improved from an average of 4.3%pa to 5.8%pa and geared total returns have improved from an average of 8.8%pa to 12.3%pa.
  • Across the 19 markets covered, more adverse debt terms have reduced geared total return expectations in most markets, and by -0.7%pa on average but this has been more than offset by rising forecasts; 17 out of 19 markets have seen forecasts improve, by 3.5%pa on average.


Figure 3: The changed outlook for prime office performance, Dec-20 to Dec-25

Source: CBRE Debt Map, Q3 2020

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

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