EASTERN EUROPE OFFERS MOST FAVOURABLE DEBT TERMS IN EUROPE
The Eastern European markets of Budapest, Bucharest and Warsaw, in addition to Milan and Oslo, offer the most amenable conditions for both lenders and borrowers, according to the latest research from global real estate advisor, CBRE.
CBRE has developed an analysis to determine lender and borrower friendliness in 20 markets across Europe. In addition to Budapest and Bucharest, the capital cities of Western Europe, including Dublin, Lisbon and London, were considered the most favourable locations for the lending community but scored less highly for borrowers with London deemed the least friendly location in Europe in which to borrow.
Based purely on pricing, the CBRE analysis therefore shows that lenders would be wise to consider less core markets for more attractive returns, although this does not account for other qualities including scale, liquidity and regulatory conditions that need to be considered.
Amenable borrowing locations on the other hand were spread across Europe with Berlin, Madrid and Amsterdam in Western Europe, Helsinki and Stockholm in the Nordics and Bratislava, Prague and Budapest in Eastern Europe proving the most amenable locations for borrowers.
Whilst there are five locations that are friendly to both lenders and borrowers, there are a further five that are considered unfavourable for both parties. These included the Western European markets of Brussels, Copenhagen, Vienna, Paris and Zurich.
For each of the 20 markets, the analysis looked at underlying market strength (determined by projected returns) against specific metrics representing the favourability of debt terms. For lenders, this included the property yield minus the total cost of debt, and debt yield, and for borrowers it considered the difference between the property yield and the total cost of debt as a proportion of the property yield.
Figure 1: Composite comparison of conditions for lenders and borrowers
Source: CBRE Research
Our analysis of borrowing terms in 20 European countries shows that lenders willing to move beyond core markets will be rewarded with higher returns, as indeed they should be, given the lower liquidity and lack of maturity in many peripheral locations. Whilst larger, more established markets may seem less appealing, lower returns may be compensated for by scale and perceived stability. Few borrowers or lenders will have a presence across all 20 geographies, with many showing some bias towards certain locations. It is therefore more important than ever for both parties to seek professional advice when navigating the complexities of the European debt markets.
A full copy of the CBRE European Debt Map can be found here.