Corporate sale and leaseback transactions including those in Yorkshire are set to raise almost £2 billion in 2020 as companies explore alternative ways of raising capital and strengthening their balance sheets, according to new analysis by Knight Frank.
According to Knight Frank’s data, £1.05 billion has been raised by companies selling and leasing back commercial real estate in 2020, representing 6% of all UK commercial real estate transactions by volume – a level not seen since 2008/9 during the Global Financial Crisis.
Nick Wales, Partner at the Sheffield office of Knight Frank, said of the transactions completed in 2020, 62% were for industrial assets, 22% involved offices and 17% were for retail, with investor demand determined by a combination of the underlying asset value, tenant covenant strength and lease terms.
Knight Frank, which has offices in Sheffield and Leeds, forecasts that UK sale-and-leasebacks will reach £2 billion in 2020, above the five-year average despite a 50% year-on-year decline in UK commercial real estate investment overall.
A recent notable example regionally included Next, initially selling three inter-connected warehouses in Doncaster to Aviva for £107m, followed by the sale of their HQ at Enderby in Leicestershire to BA Pension fund for £48m.
Nationally, over £850 million of UK real estate is currently being actively marketed for sale by companies on a leaseback basis, including BP’s international headquarters at St James Square, and the London head office of British American Tobacco, at Temple, WC2.
Nick Wales, Partner at the Sheffield office of Knight Frank, said: “This data underlines that sale-and-leasebacks will be one of the drivers of the UK real estate investment market across the country, including in South Yorkshire, in 2020 and 2021, as corporates seek to identify new ways to raise capital.
“These are attractive for buyers as they offer long-term secure income indexed to inflation, at a time when there is a lack of liquidity in the market and shortage of stock.
“For corporates it can be the most efficient way to release capital from real estate, to invest in operations, bolster balance sheets and pay down debt.
“Given the economic uncertainty it is critical sale-and-leaseback deals are not only attractive to the market but are structured as to not place undue stress on vendors and would-be occupiers. Striking that balance will be key to the long-term success of these transactions.”
