Financing conditions are expected to remain strong despite the uncertain macroeconomic environment, according to a report published by Nordic Credit Rating (NCR) today. "Credit margins on new loans are highly competitive compared with historical levels and, in some cases, are lower than before the announcement of US tariffs in April," said NCR credit analyst Gustav Nilsson. "We expect issuers to take advantage of low-cost borrowings to refinance 2026 maturities in the near term. Breakage fees on loans and redemption premia on bonds may be sufficiently low to motivate refinancing of even longer maturities, provided this results in a net reduction in total financing costs."
We expect temporary compression of average interest costs in the coming quarters, driven by refinancing of maturing debt at more favourable terms and lower market interest rates. However, we anticipate that average interest costs will level out at approximately the levels reported in the second quarter of 2025, reflecting the all-in cost for most issuers, depending on the extent of their hedging. We currently view refinancing risk as low, but sentiment could shift quickly if there is a significant deterioration in the macroeconomic environment.
We expect operational cash flows to remain robust, despite a projected slowdown in rental growth and some vacancies in more cyclical segments. Early signs of increased search activity among prospective tenants could support a more visible recovery in net letting by year-end 2025, with a more pronounced rebound anticipated in 2026. We expect community service and residential properties to perform particularly well, given their lower downside risk to income streams and more favourable growth trajectories compared with other segments. Overall, we see limited upside to issuers' interest coverage, reflecting expectations of modest rental growth and a levelling out of interest costs.
Contacts:
Gustav Nilsson, analyst, +46735420446, gustav.nilsson@nordiccreditrating.com
Elisabeth Adebäck, analyst, +46700442775, elisabeth.adeback@nordiccreditrating.com