CBRE: Sale & leaseback deals gain momentum in H1

Corporate sale and leaseback transactions have grown rapidly across Europe, rising by 585% in just four years from EUR 6.7 bn in 2004 to EUR 46 bn in 2007, according to a new report by property advisor CB Richard Ellis (CBRE).

Against the backdrop of economic uncertainty and a substantial increase in the cost of corporate debt, these deals - a cashflow management solution - are gaining momentum across Europe and accounted for 21% of all European investment activity in the first half of 2008 - their highest percentage contribution ever. This figure compares to just 6% in 2004.

Corporates' decisions to proceed with a sale and leaseback are motivated by a range of factors, including the increased pressure to raise capital, the high cost of debt, the need for more flexible lease structures and the growing cultural acceptability of selling real estate, CBRE said. These factors have raised the status of sale and leasebacks as a means of capital raising for corporates.

'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,' said John Wilson, head of Corporate Strategies within CBRE's Global Corporate Services business.

Wilson: '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 are increasingly popular.'

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 EUR 2 bn worth of sale and leaseback deals since the beginning of 2007. 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. Increased activity is also starting to become evident in Central and Eastern Europe, where EUR 291 mln of sale and leaseback transactions were completed in the first half of 2008 compared to EUR 178 mln in all of 2007.

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 (EUR 4.2 bn) were almost equal to those in the office sector (EUR 4.7 bn). This reflects a number of changes in retailing, including moves toward larger average store sizes and the public listing of retail companies, which have made retailers look more favourably on real estate disposal strategies.