A 10-percent correction is needed on average for the gateway industrial markets in the United States to compensate for the higher cost of debt, with prime industrial cap rates required to soften by 20 basis points (bps) to 140 bps to generate a low-risk interest coverage ratio at a reasonable LTV, according to a Research Briefing by Oxford Economics.
A similar correction for gateway offices seems less likely in the United States, as prime office cap rates have softened over the past two years.
The U.S. five-year swap rate is now 3.1 percent, some 210 bps higher than a year ago, with loan margins also up 10bps to 15bps by Oxford’s estimates. While the Federal Reserve has yet to release its Senior Loan Officer Opinion Survey for second quarter 2021, other central bank surveys of bank-credit standards suggest that global-credit conditions are shifting from loosening to tightening – with corporate standards tightening particularly quickly in the eurozone.