By Scott Wright

SCOTTISH companies are increasingly pursuing sale and leaseback deals for their commercial properties to boost balance sheets and fund corporate activity, a property expert has declared.

Alison Newton, co-head of real estate at law firm Addleshaw Goddard, hailed the tactic as an “extraordinarily helpful strategic tool in the armoury of businesses”, while also being attractive to investors.

Her comments come amid concern over the levels of debt many businesses have been forced to take on during the long spells they have been unable to trade over the course of the pandemic.

Ms Newton: “From an investor point of view there is an absolute tonne of money wanting to be invested in real estate, and it is all sorts of money: private equity, private money, overseas money, local money, people who went to cash at a smart time now needing to get back in.

“There is lots of money looking to buy investments of all different sorts.”

Among the types of property investors are acquiring via sale and leaseback deals include student accommodation, healthcare premises and “last mile” logistics properties.

The latter have been in particular demand in light of the huge rise in online shopping seen during the pandemic.

Ms Newton cites the example of retailers Next and Ted Baker, which have raised tens of millions of pounds from the sale and leaseback of properties such as headquarters and distribution premises in recent months.

Addleshaw Goddard advised on the sale and leaseback by Ted Baker of its London headquarters, The Ugly Brown Building, which was acquired by the British Airways pension scheme for £78.8 million in July.

Ms Newton said: “The market has gone bonkers for distribution, whether that is the enormous automated regional hubs, or the “last mile”, much smaller [properties], located throughout towns and cities.

“Next itself has probably had a horrible time in terms of cash flow, like some of the other high street retailers, but [has] done great business online… and they were better at online than a lot of other people were to start with.”

While sale and leasebacks are being pursued by firms in some instances to “shore up” balance sheets, Ms Newton said they are also being used strategically.

Family-owned businesses may elect to sell and leaseback property to boost their pension schemes, ahead of a prospective trade sale in the future. Others are using such deals to fund acquisitions.

“It is just smart business,” Ms Newton said.

Meanwhile, Ms Newton said she was seeing “quite lot of activity” in the Scottish commercial property market – including new lease deals and renewals – when asked if the prospect of a new referendum on independence could affect conditions.

Speaking shortly before the Scottish election on Thursday, Ms Newton said: “It would probably be banal to say it has no effect but there is not a screeching halt or anything like that. It is almost like we have got used to living with that level of rhetoric from politicians.”

Ms Newton added: “There was a bigger stop last March and April than [in] the current climate. We have seen gradually increasing levels of business, and there are lots of interesting projects happening.”

Asked if she felt that investors were confident, Ms Newton replied: “Yes, I do actually, because I know we are buying, we are leasing, we are relocating people, and each time you do that then there is somebody selling or buying, somebody funding or providing equity.

“Is it boom time? No. I think we might be missing… some of that absolute top stuff. But there is product there to buy, and plans afoot to deal with it.”

However, she noted: “Speak to me in a week’s time.”

Ms Newton’s comments came shortly before a report published by Addleshaw Goddard earlier this week found that digital connectivity would be the main driver of workspace in the future, not physical location, further to the pandemic.