The most recent quarter experienced the largest European corporate net lease transaction of the year boosting overall volume for this type of deal to €1.5bn.
Valesco Group’s acquisition of hospitality multinational Accor’s Paris HQ for €460 mln was the stand out transaction, and ‘acts as a boost to the office sector’ which has been out of favour among many investors following the effects of covid, said Colliers in a report.
However, retail warehouses and industrial properties continue to be the focus of net lease investors, said the agent in its Q2 2023 Corporate Capital Outlook publication.
According to the report, Q2 2023 experienced a higher volume of corporate net lease transactions compared to Q1.
It continued: ‘As we head into the second half of 2023, we expect financing conditions to tighten further as central banks aim to reduce instability and restore market confidence.’
‘Whilst corporate earnings momentum is stalling, strong financials have translated into a positive ratings transition, particularly for investment grade companies.
'However, lower investment grade and speculative grade companies are expected to see a tighter credit environment through traditional financing routes, resulting in a more active review of their real estate portfolio for opportunities to raise cost effect capital, to either invest back into the core business or to pay down expensive debt.'
Colliers also said from 2024 to 2026 there was a steady rise of corporate debt maturing, reaching a peak of almost €1.9 trn. The groups most exposed to these are corporates with a rating of lower medium investment grade.
With rising financing costs, this poses risks to many companies who will otherwise experience significantly higher refinancing costs over the next 1-3 years. Over the past 12 months, SWAP rates have more than doubled. Five-year SONIA SWAPs have risen from 2.5% to 5.0%.
Robert Campkin, MD, corporate capital solutions occupier services EMEA, explained: 'In an unpredictable market we’re still waiting to see how the impact of rising interest rates and higher inflation will play out in the debt markets over the coming months.’
‘What we do know is that funding and refinancing is getting harder to access. Cautious lenders are prompting many corporates to look to alternative sources of capital, as reflected in a steady uplift in sale and leaseback deals across the region.’
‘With high debt costs we’re also expecting M&A activity across Europe to be dynamic, particularly among well-capitalised investors such as private equity firms and sovereign wealth funds. There remains potential for sellers to strike some attractive deals.’
