A stable, well-functioning financial market for allA stable, well-functioning financial market for allFI Analysis No. 41: Commercial real estate firms may need to reduce their debt
In this analysis, we estimate how much Swedish listed and larger privately owned commercial real estate firms need to reduce their debt in a climate of rising financing costs and falling property values. We calculate the firms need to reduce their debt to maintain certain levels of interest coverage ratio and loan-to-value.
Rapidly rising interest rates greatly impact commercial real estate firms as they have high debt, are very sensitive to changes in the interest rate and also have a substantial need to refinance their debt. Though some firms have started to adjust their debt, the analysis shows that more is needed to cope with a scenario of interest rate costs rising to 5 per cent and property values falling by 20 per cent. The firms can strengthen their financial position in various ways and over time.
