Europe in Commercial Property Debt Spiral
Thursday, March 25, 2010 15:11
Europe faces a commercial property debt time bomb with almost €1 trillion outstanding from the sector and a quarter of that potentially distressed.
New research indicated that the UK accounts for 34pc of the €970bn total, with Germany second with 24pc. The scale of commercial property debt in the UK, and the precarious nature of much of it, has been flagged by the Bank of England and the FSA as a threat to the recovery of the economy and the banks. However, the report by CBRE high-lights that it is an issue for most of Europe.
According to the property agent, €207bn of the debt is secured at high loan-to-value ratios on poor quality real estate, and is there fore most at risk of not being rapaid. Meanwhile, the debt is maturing at a rate of €155bn a year, meaning almost half will have matured by the end of 2012. there are concerns about the repercussions of the outstandinbg debt following sharp falls in commercial property values ever since 2007. It has casted great pressure on loan-to-value covenants and eroded equity. Tenant failures and declining rents have also influenced the income for property owners.
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