Corporate disposals increase in H1 as financing dries up - JLL

Corporate real estate disposals in Europe totalled EUR 13.98 bn in the first half of 2008, up 14.6% from EUR 12.2 bn in the same period a year earlier, according to a new research report from Jones Lang LaSalle (JLL). They have nearly doubled as a percentage of total direct commercial real estate transactions in the last year; from 11% in the first six months of 2007 to 20% in the corresponding period this year, the report found.

Michael Evans, director at JLL Corporate Finance, said: 'At a time when many developed economies are predicted to suffer a recession, the availability of financing will be much more restricted. In a climate where ''cash is king''; releasing cash via property disposals, including sale-and-leaseback deals, will remain high on the finance director's agenda.'

'A recession is likely to lead to a polarisation in corporate capital market activity between those corporates that are financially stable and those that are weaker. Weaker ones will look to use property to raise capital, whereas stronger covenants are looking to take advantage of the market and buy in strategically important properties. What's more, the buyers of corporate property will be paying much greater attention to the financial strength of potential tenants, lease terms and growth prospects given current market conditions and may seek rental deposits or vendor loans from weaker tenants,' said Matt Richards, director at JLL Corporate Finance.

The value of corporate transactions in the European real estate investment market has grown dramatically since 2004; from EUR 12 bn to EUR 26 bn in 2007. This significant increase in corporate capital market activity reflects the growth in European real estate transactions as a whole over that period. As yields fell and values rose throughout Europe, corporates have been keen to take advantage and have been using their owned property as an alternative source to raise capital cheaply and enhance their return on capital employed.