Appetite for corporate asset disposals remains strong
Turnover from corporate property disposals, across Europe, is on an upward trajectory and set to reach €20 billion in 2015, according to the latest research by CBRE.
Motivated by a desire to fund strategic change and an increasing acceptance of more innovative financial structures in the marketplace, corporate property asset sales continue to rise. This comes at a time when commercial property investment across Europe is set to rise for the sixth consecutive year after exceeding €220 billion in 2014.
Richard Holberton, EMEA Head of Occupier Research at CBRE, commented: “While there are still some investment risks associated with the cohesion of the Eurozone, and the impact of slower growth in China and other emerging markets, capital appetite for real estate remains high. So while corporate property sales across Europe are rising, their share of the overall market has been shrinking. In 2008, during the early throes of the financial crisis corporate disposals accounted for 1 in 5 sales, or 18 percent, of the total market. This figure was halved last year to just 9 percent. Behind the raw figures, one interesting shift we are seeing is a greater willingness by corporates to seek short leases in sale-and-leaseback transactions, because of the critical need for flexibility, even though this will dilute the sale price they can command.”
The last 18 months has seen the UK lead the way with corporate disposals accounting for 29 percent of the total market, closely tailed by Germany with 22 percent market share. The UK and Germany remain the dominant force with more than half of the combined market at 51 percent. This is consistent with the average across the last decade although the UK is slightly ahead of, and Germany slightly behind, its median position. A number of major retail transactions combined with significant Central London and office mixed use disposals underpin the UK total.
The Netherlands (9 percent), France (7 percent) and Spain (7 percent) account for just under a further quarter of the 2014-15 market, and the Nordic region for an additional 15 percent. Other than Spain where recent market share is around its ten year average, southern Europe has been comparatively weak, with Italy accounting for 3 percent of the market compared with a more typical figure of 7 percent.
Improving economic conditions, falling unemployment and higher consumption growth across Europe is providing a favourable backdrop for the acquisition of retail and industrial assets. In the first half of 2015, collective retail corporate disposals hit €2.2 billion almost the same figure for the whole of 2014 at €2.4 billion. The industrial sector also picked up, with its 2014-15 market share reaching 14 percent compared with a long-run average of 9 percent.
The office sector remains the largest single component of corporate disposals with 38 percent of all activity in the first half of 2015. In addition, mixed-use buildings now represent 5 percent of the total market with a turnover of €442 million in H1 2015 compared to €100 million across the full calendar year in 2014.
John Wilson, Executive Director – EMEA Global Workplace Solutions, at CBRE explained: “Corporate real estate disposals are used as a traditional method to raise capital. At present, low borrowing costs mean the corporate bond market is attractive and on average UK corporate profits have grown by over 4 percent per year over the last three, meaning retained earnings can fund onward investment.
“So, new disposal trends are emerging indicative of funding change. These are, companies managing down surplus property assets post acquisition, disposal of older buildings, and advancement of corporate sustainability aims which is often linked to the removal of older assets increasingly executed through structures that allow sharing of proceeds between investor and corporate. In essence, the fact that many transactions are motivated by the desire to fund long-term strategic plans also reflects growing confidence in external market conditions.”
Valentin Gavrilov, Director of Research, CBRE in Russia, commented: “Corporate business quite often shows very good property management skills, buying at cyclical lows and selling close to price peaks. In this regard, the situation when the last peak of corporate property disposals was observed in 2007 – right before the world crisis – can hardly be considered as a fortuity. Thus, growing volumes of corporate property disposals in Europe in the last year might be perceived as empirical evidence that business believes that current prices are high. As a result, the volumes of sales are increasing despite the opportunity to attract very cheap financing from the lending market. The Russian situation is an opposite example. After a decline of asset prices in dollar terms by 35-50 percent, corporates are more and more thinking about end-user acquisitions of commercial real estate. Megafon’s acquisition of 49,99 percent stake in BC Oruzheyniy for USD 280 million is a good example of such a practice in Q3 2015. Another interesting fact is the high acquisition activity of retailers and production companies in the I&L segment: more than 200,000 sqm were acquired via large transactions. It is too early yet to talk about a commercial real estate market recovery. However, the chances for this scenario are growing.”