Corporate real estate transactions in Europe reached €13.98 bn (£ 11. 8bn) in the first half of 2008, up 14.6% from €12.2 bn (£10.37bn) in the first half of 2007.
They have nearly doubled as a percentage of total direct commercial real estate transactions in the last year; from 11% in the first half of 2007 to 20% the same time this year, according to new corporate capital markets research from Jones Lang LaSalle.
Michael Evans, a director at Jones Lang Lasalle Corporate Finance said: ‘At a time when many developed economies are predicted to suffer a recession, the availability of financing will be much more restricted. In a climate where ‘cash is king’; releasing cash via property disposals, including sale and leaseback deals, will remain high on the finance director’s agenda.’
Matt Richards, another director at Jones Lang LaSalle Corporate Finance said: ‘A recession is likely to lead to a polarisation in corporate capital market activity between those corporates that are financially stable and those that are weaker. Weaker ones will look to use property to raise capital, whereas stronger covenants are looking to take advantage of the market and buy in strategically important properties.
‘What’s more, the buyers of corporate property will be paying much greater attention to the financial strength of potential tenants, lease terms and growth prospects given current market conditions and may seek rental deposits or vendor loans from weaker tenants.’
The value of corporate transactions in the European real estate investment market has grown dramatically since 2004; from €12bn (£10.2bn) to €26bn (£22.1bn) in 2007, the research says.
This significant increase in corporate capital market activity reflects the growth in European real estate transactions as a whole over that period.
As yields fell and values rose throughout Europe, corporates have been keen to take advantage and have been using their owned property as an alternative source to raise capital cheaply and enhance their return on capital employed.
The number of transactions has also nearly doubled since 2005, with 157 corporate transactions completed across Europe just in the first half of 2008, compared with 80 in the first half of 2005.
Large deals dominate: the average size of a corporate disposal stands at €89 million during the first half of 2008 as compared with €59.7 million in 2004.
East vs. West: Corporate capital market activity is moving east, but is still dominated by the major economies of Germany, France, the UK and Spain (see map).
Retail riding high: The retail sector accounted for nearly a third of the H1 2008 corporate transactions by value, some €3.7 billion, over €1 billion more than the financial services sector and nearly three times as much as the third largest sector: information and communication technologies.