Sale and leaseback proving popular cashflow option
CORPORATE sale and leaseback transactions have grown rapidly across Europe rising by 585% from €6.7bn (£5.3bn) in 2004 to €46bn (£36.4bn) in 2007, according to CB Richard Ellis (CBRE).
The report by the commercial real estate advisor shows that firms are increasingly looking at raising capital through sale and leaseback as debt costs soar and good cashflow becomes essential for business survival and growth.
The option accounted for 21% of all European investment activity in the first half of 2008 – the highest percentage contribution ever.
CBRE said that the increase could be linked to a growing cultural acceptability of selling real estate as well as financial pressures.
John Wilson, head of corporate strategies within CBRE’s global corporate services business, said: “The wave of sale and leasebacks in the banking sector in recent years eradicated the last resort stigma previously attached to this type of transaction, transforming it into another viable choice for corporates looking to raise capital.
“Moreover, their robust investment characteristics – longer leases, strong covenants and operational flexibility – make sale and leasebacks attractive to the type of long-term, equity-based investors that are most active in today’s more challenging market. As a result, sale and leaseback transactions remain increasingly popular in today’s market.”
Sale and leaseback activity has become more geographically dispersed in recent years. The UK accounted for 21% of the sale and leaseback market over the past 18 months, down from 42% in 2005.
France, Italy, Spain and Sweden have each seen more than €2bn worth of sale and leaseback transactions undertaken in their domestic markets since the beginning of 2007, contributing to the overall growth of this activity in Europe.
However, the UK and Germany still dominate activity, accounting for more than half of all sale and leasebacks in the past 18 months, with Germany alone accounting for 34% of that total, up from 18% in 2005.
Traditionally dominated by office properties, sale and leaseback activity has also seen sector diversification over the past few years.
Retail, industrial and mixed-use assets now contribute significantly to this market. In the first half of 2008 retail disposals were almost equal to those in the office sector.
“The strong performance of sale and leasebacks over the past few years, including the first half of 2008, suggests that they continue to be a growth opportunity in Europe and a key driver of growth in real estate investment,” said Mr Wilson.
“As sale and leasebacks become more commonplace, the parameters within which they are transacted become better known and the decision-making process more streamlined, creating a more transparent and accessible solution.”
He added: “Despite the rapid growth of sale and leasebacks in recent years, owner-occupation remains dominant in most parts of mainland Europe.
With the total value of corporate owner-occupied property probably exceeding €2.25 trillion, the scope of future sale and leaseback activity is significant.”
