By Kristy Dorsey
The scramble by companies to bolster their finances amid the coronavirus pandemic has led to a surge in sale-and-leaseback agreements to levels last seen in the wake of the global financial crisis.
Figures from commercial property consultancy Knight Frank show that more than £1 billion has been raised by companies selling and leasing back their commercial premises in the UK during 2020. That represents 6 per cent of all transactions by volume, a level not seen since 2008/09.
Knight Frank said it expects more Scottish companies to follow the example of BrewDog, which sold its fully refrigerated “Hop Hub” warehouse at Eurocentral in a £10 million-plus deal to CBRE Global Investor at the end of last year. Other notable Scottish deals include the sale of John Menzies’ base at Edinburgh Park to the Regional REIT investment trust for £10.3m.
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It forecasts that the value of UK sale-and-leasebacks will reach £2bn for the whole of this year, which is above the five-year average. This activity is providing a boost to overall commercial real estate investment, which has fallen by half when compared to 2019.
More than £850m of UK commercial property is currently being actively marketed for sale by companies on a leaseback basis, Knight Frank said, including the London headquarters of BP and British American Tobacco.
Alasdair Steele, head of Knight Frank’s commercial division in Scotland, said sale-and-leaseback deals are a popular option for businesses looking to raise cash and shore up their balance sheets.
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“They are an attractive option for companies looking to improve their financial position and an efficient way of releasing capital from their property assets,” he said. “Effectively they are a bond that uses the strength of covenant to underpin the deal, providing cash without debt.
“Their popularity with businesses is also reflected in investor appetite. Sale-and-leasebacks offer a number of benefits to investors as a source of secure long-term, index-linked income – highly sought-after in these uncertain economic conditions.”
However, he added that in order to make these deals work for both sides, they must be structured in a way that offers attractive returns to investors without placing “undue stress” on the company that is selling. Striking this balance will be “key” as the economy heads through further disruption and eventual recovery.
Of the transactions completed so far in 2020, 62% were for industrial assets, 22% involved offices and 17% were in the retail sector. Knight Frank investor demand is being determined by a combination of the underlying value of the property, tenant covenant strength and the lease terms.
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