Research Briefing
| Jan 6, 2023
The worst is not behind us yet for European commercial real estate
![](https://www.oxfordeconomics.com/wp-content/uploads/2023/01/The-worst-is-not-behind-us-yet-for-commercial-real-estate-iPad-1.png)
Though a correction in values is firmly underway for European commercial real estate markets, we believe the worst is yet to come – meaning that the best buying opportunities are not just around the corner.
What you will learn:
- The gradual ramping up of higher debt costs on portfolios is a limiting factor for a quick recovery. By the end of 2025, we estimate that the all-in interest rate for a hypothetical portfolio could reach around 3.7%, which is on par with 2013 levels – that’s just four years to unwind eight years of debt cost reductions.
- This may force interest coverage ratios to acutely low levels, while owners facing a refinancing shortfall in 2023 will need to add more equity, seek new equity investors, or default – with poorer quality assets looking most exposed.
- The downside risk of higher-for-longer interest rates will weigh on sentiment. While we expect that advanced economy policy rates will peak this year as supply-chain bottlenecks ease and inflation falls back to near-target levels – alleviating pressure on real estate pricing – that is not imminent nor is it without risk as highlighted by recent hawkish ECB communications.
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