The value of sale and leaseback transactions concluded in Europe in 2020 amounted to a total of EUR 8.4 billion and was 8.5% higher than the five-year average. The growth trend will also continue in 2021, according to the international consulting company Savills. Also in Poland, more and more companies are interested in this type of transactions – mainly in the warehouse and commercial real estate sector.
Savills data shows that last year’s sales and leaseback transactions were 10% lower than in 2019. Nevertheless, a fairly strong correlation between real estate prices and sales and leaseback activity was already visible earlier, which translates into an increase in the number of transactions concluded in this formula when capitalization rates are compressed. According to Savills, now is a very good time for sale and leaseback deals, as rising property prices encourage private owners to sell assets, and investment opportunities in the market are severely limited.
“The increasing pressure for companies to increase liquidity in order to improve financial performance or to make acquisitions now and after the Covid-19 pandemic will contribute to an increase in the popularity of sale and leaseback transactions in 2021. We anticipate that a record number of such transactions will be concluded in the second half of the year. The sale offers will be of great interest to investors with increasing capital and looking for long-term income generating assets that would provide funds to cover liabilities, ”says Oli Fraser Looen, Co-Director EMEA Investment Advisory, Savills.
Logistics as a leader
In terms of sectors, logistics continues to gain in popularity thanks to the expansion of e-commerce.
“Strong competition on the market, in the conditions of limited supply of investment products, resulted in a drop in capitalization rates in the main locations by approx. 312 bp to the level of 3% over the last 10 years. To maintain market share, many e-commerce companies must invest large amounts of money in securing a strategic location, developing an omnichannel strategy or integrating automation processes. This makes sale and leaseback transactions that make business sense for some private logistics property owners, ”says Lydia Brissy, director, European Market Research, Savills.
As a result, the value of sale and leaseback transactions on the European logistics real estate market has been systematically growing since the end of 2013 and last year reached a record level of EUR 3.4 billion, i.e. approx. 15% more than in 2019. At the same time, the volume of investment transactions on this market increased by only 4%, which confirms that the low supply is hampering investment activity in this sector.
Sales and leaseback transactions in the retail real estate sector concerned mainly supermarket and hypermarket chains, while the food industry turned out to be resistant to the lockdown restrictions introduced in individual countries. This resilience attracted the attention of investors interested in maintaining exposure in the retail sector, which compressed the yields for supermarkets. Average yields for the top supermarkets in Europe fell by 14 bps in 2019-2020, while for the most attractive shopping centers they increased by 39 bps during that time.
In the office real estate sector, despite the strong compression of capitalization rates observed since 2009 (on average by 270 bp in major European cities), the volume of sales and lease-back transactions has increased only slightly since 2013. Nevertheless, last year the value of investment transactions of this type in the office market amounted to EUR 3.4 billion.
“Although the role of the office sector has been revised in the last 12 months, the lease terms for most office tenants have not changed. Selling and leaseback is one of the options allowing for greater flexibility, but potential investors will be interested in assessing both the location and the health of the tenant’s sector and its credibility before making a purchase decision, ”adds Lydia Brissy.
First of all, the location
In terms of the number of large transactions, the title of leader went to France, where the sale of the Harmony facility currently under construction, which will house Engie’s headquarters, deserves special attention. Germany came second, where the sales and leaseback transactions were mostly affected by the sale of the Hamburg Commercial Bank headquarters to the Signa group and the sale of the Random House building, owned by Bertelsmann, to the investment company Allianz Real Estate.
The trend reaches Poland
“Over the last two years, we have observed an increase in the awareness of property owners in Poland regarding the possibility of sale and lease back. They see the benefits of this solution, which enables them to expand faster in our still dynamically developing economy. Also, investors interested in assets with net leases can close this type of transaction quickly, which is particularly attractive to companies that would otherwise have to obtain external financing from often slower operating banks. In order for the property owner to successfully complete the sale and lease-back transaction, he must be able to show good financial results, then be a reliable tenant and the property itself must be attractive to the investor, ”says Łukasz Fromiński, director in the investment advisory department, Savills Polska.
