2026-10-10 11:43

Should a commercial property loan carry a fixed or a floating rate?

A German floating-rate loan, usually tied to EURIBOR, can be ended at any time on three months' notice; a fixed-rate loan, without compensating the bank, only when the fixed rate expires or after ten years (§ 489 BGB). If the property is sold, a fixed-rate loan is repaid early, but the bank's loss must be made good (§ 490 BGB). In August 2026 new secured loans to companies above €1 million cost an average of 3.87% at a floating rate and 3.29% with the rate fixed for more than 10 years (Deutsche Bundesbank).

A fixed rate buys certainty, but leaving it costs money

The borrower's exit rights are protected by law: a contract may not exclude or impede them (§ 489(4) BGB). A fixed-rate loan can be terminated on one month's notice to the end of the fixed-rate period if no new rate has been agreed. In any case it can be terminated ten years after the full amount was received, on six months' notice, and a new agreement on the rate or the term restarts that clock (§ 489(1) BGB).

Before those dates, a fixed-rate loan secured by a land charge (Grundschuld) can be terminated only if the borrower's legitimate interests require it — above all, a sale of the property. This is possible no earlier than six months after the money was received, on three months' notice and with compensation for the bank's loss (Vorfälligkeitsentschädigung, § 490(2) BGB). The bank, for its part, may terminate if the borrower's financial position or the value of the collateral deteriorates substantially and repayment is at risk (§ 490(1) BGB).

A floating rate tracks EURIBOR and can be exited without compensation

The borrower may terminate a variable-rate loan at any time on three months' notice (§ 489(2) BGB). The rate usually consists of three-month EURIBOR plus the bank's margin. In 2026 EURIBOR rose from an average of 2.01% in February to 2.64% in September. The European Central Bank (ECB) raised its deposit rate twice: to 2.25% from 17 June and to 2.50% from 16 September. The average floating rate on secured loans in August (3.87%) was 1.4 percentage points above that month's EURIBOR (2.51%): a difference between market averages, not a particular bank's margin (our calculation).

In practice, banks often require the floating rate to be hedged with an interest rate swap or a cap. A swap is a separate contract: on early repayment it is closed out at market value, in the borrower's favour or against it.

Loans grew dearer over the year at every fixed-rate period

Exhibit 1. Over the year, secured loans became 0.3–0.5 percentage points dearer at every fixed-rate period

Fixed-rate period	August 2025, %	August 2026, %	Change, pp
Floating or up to 3 months	3.54	3.87	+0.33
Over 3 and up to 5 years	3.86	4.21	+0.35
Over 5 and up to 10 years	3.26	3.57	+0.31
Over 10 years	2.81	3.29	+0.48
For comparison: three-month EURIBOR	2.02	2.51	+0.49

New secured loans to non-financial companies above €1 million, average rates excluding fees; August 2026 figures are provisional. Sources: Deutsche Bundesbank, ECB.

In every month from August 2025 to August 2026, the average rate fixed for more than 10 years was below the average floating rate. But these are averages across different borrowers, not the price of one loan: the bank sets the rate for a deal according to the property, the tenant and the loan's share of the value.

Match the fixed-rate period to the lease and the exit plan

New and extended stores are mostly let for 15 years (BNP Paribas Real Estate). With a 10-year fixed rate, the last five years of the lease must be financed at a rate nobody knows today. With a rate fixed for more than ten years, the borrower may exit without compensation after ten years, while the bank stays bound by the rate.

A floating rate is more flexible on a sale but shifts the interest rate risk to the owner. On a €5 million loan, a 1 percentage point rise in EURIBOR adds €50,000 of interest a year. That is about 12% of the NOI of the €10 million supermarket in our series' example (our calculation; see Part 11 of the series German Prime Retail).

Implications for investors

1. Match the fixed-rate period to the remaining lease term and the holding period. A ten-year fixed rate on a 15-year lease leaves five years without a known rate, and selling before the fixed rate expires means compensating the bank.

2. Stress-test a floating rate. One percentage point more on a €5 million loan costs €50,000 a year, about 12% of the NOI of a €10 million store.

3. Agree early-repayment terms before signing. Find out how the bank calculates compensation, whether it allows partial repayments and what closing out the swap would cost.

What to check:
• the fixed-rate period against the remaining fixed lease term and the planned holding period;
• for a floating rate: the base rate, the margin, any rate floor and the hedging requirements;
• how compensation for early repayment is calculated, and the right to make partial repayments;
• covenants and the grounds on which the bank may demand early repayment;
• the rate against the property's net initial yield: a loan that costs more lowers the return on equity.

Sources: §§ 488(3), 489, 490 BGB; Deutsche Bundesbank, bank interest rate statistics: new secured loans to non-financial corporations above €1 million, series SUD174 and SUD177–SUD179 (data as of 1 October 2026); European Central Bank, three-month EURIBOR (monthly averages) and deposit facility rate; BNP Paribas Real Estate, Grocery-Investmentmarkt Deutschland, Q4 2025 (lease terms); the series German Prime Retail, Part 11; Gordon Real Estate Group calculations. Legal position as of 10 October 2026.

Photo: Jan-Philipp Thiele / Unsplash

This page is general information and not investment, legal or tax advice.

Ilya Gordon