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November 3, 2015

Investor demand for European real estate is being met by a growing cohort of corporates who are selling property assets to raise capital.

According to JLL Research, 2014 saw the highest number of corporate disposals in Europe in seven years with an uptick in activity across all sectors and asset types. This momentum has carried through into 2015, coinciding with increasingly strong investment flows into real estate – in Q3, European markets recorded 22 percent higher volumes* than the same quarter in 2014.

Such strong demand from increasingly risk-inclined investors is pushing property yields to new lows at the fastest pace for five years. And this is encouraging many companies to consider raising capital through real estate sales.

“Unprecedented levels of equity are targeting European real estate, fuelling investment opportunities and providing a once in a cycle opportunity for property owners to raise capital, create flexibility or dispose of unwanted problems at attractive pricing,” said Mike Evans, director of JLL’s corporate capital markets, EMEA.

“Many corporates are also taking advantage of increased risk appetite from investors, and the higher values of most real estate classes across the board, to downsize and create flexibility in their portfolio.

“Companies with owned assets should be asking themselves, is now the time to sell?”

Corporates are facing more pressure than ever to optimise costs, deliver value to shareholders and maintain healthy balance sheets. JLL’s Global Corporate Real Estate Trends report revealed that 40 percent of survey respondents felt pressure from senior leadership to raise capital through the real estate portfolio.

Lease Vs. Sell

Yet, for some organisations ‘selling the family silver’ remains a psychological barrier. Karen Williamson, associate director, corporate occupier research, JLL EMEA, explains: “Cash rich companies with ready access to corporate debt at attractive rates are unlikely to sell off core properties to raise capital at a higher cost. However, other companies are increasingly looking at ways of utilising their portfolio as an alternative source of capital to equity and debt.”

Whether companies choose to buy or sell, new lease accounting standards – due to be issued before the end of 2015, to come into effect in 2019 – will put pressure on corporates to really understand the true cost of leasing property. Under the new rules, all leases will be treated as a liability on company balance sheets.

Sale and leasebacks, for example, will require far greater consideration: “There is increasingly going to be a balancing act between the economic and the accounting impact of sale and leasebacks,” said Evans.

But with investor demand rising higher year-on-year, along with asset values, the cost of capital for leasing property is at an eight-year low and this should incentivise occupiers to recycle capital in the medium-term.

* In local currency terms

Talk to JLL’s corporate capital markets team for more information.

Mike Evans

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