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Corporate sale and leasebacks hit highest level since global financial crisis

Corporate sale and leaseback transactions 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.

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 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.
Over £850 million of UK real estate is currently being actively marketed for sale by companies on a leaseback basis.

Henrie Westlake, Senior Partner at Knight Frank in Leeds, commented: “Businesses are becoming increasingly sophisticated in their approach to occupational property. In Leeds, we are seeing more companies identifying that capital is more effectively deployed in the core business than in holding property assets. This is particularly prevalent in the industrial sector.

“For corporates it can be a very effective way to release capital from real estate, to invest in operations, bolster balance sheets and pay down debt.

“These are attractive from a buyer’s perspective as they offer income secured against a company whose business plan and rationale they understand. Furthermore the transaction is underpinned by strong asset values.

“The art to a successful Sale and Leaseback is structuring the transaction so that both parties’ interests are aligned in the long term,” explained Mr Westlake.

He added that Esso, Next, British American Tobacco, Omega Kitchens and Topps Tiles had all carried out Sale and Leaseback transactions, highlighting their appeal to a wide range of successful businesses.