Corporate real estate disposals show resilience despite market uncertainty

LONDON, 15 April 2024 – New insights from JLL reveal that corporate sales outperformed the wider commercial real estate market in 2023, even as both saw declines.

While the commercial real estate market experienced a 48% decline in 2023, the decline in corporate sales was less marked, by 29%, raising €18.4bn through 456 asset sales. In fact, corporate sales accounted for 17% of all commercial real estate transactions, a figure up 15% from its previous peak in 2020, and 36% above the five-year average. This was largely driven by businesses looking to reduce overall debt levels and focus on their core operations.

JLL’s Raising Capital from Corporate Real Estate report shows the UK, Germany and France were the largest markets for corporate disposals in 2023, accounting for 52% of the total value of corporate disposal transactions across the EMEA region.

Industrial and office properties remain top sectors across EMEA driven by private equity

Industrial and office properties continue to lead the way as the most active sectors for corporate and owner-occupier disposals in 2023, accounting for 50% of the total value of disposals in EMEA.

JLL’s analysis points to private equity as a key driver of this activity, with PE controlled groups looking to refinance through property sales and pay down more expensive acquisition debt. This has been particularly prevalent in industrials and manufacturing whereas in the office sector sales have also been driven by ESG factors, notably possible obsolescence, and concerns about asset stranding.

Largest deals in Grocery and Retail

Whilst industrials led the way in deal volume, it was the retail sector where the largest individual deals were secured. Privately held Asda and Morrisons executed substantial transactions in the UK, while Decathlon closed a portfolio sale and leaseback deal across its pan-European network.

Outlook for 2024

Against a backdrop of macroeconomic challenges beginning to ease, with inflation predicted to decrease in major European markets, the real estate market is gaining confidence that its indicators are stabilizing. Given that interest is expected to settle at least 150 – 200 basis points (bps) higher than during the previous cycle, disposing of real estate will be an even more attractive option for corporates looking to unlock capital and balance sheets in 2024.

The report anticipates continued capital deployment in sectors resilient to high interest rates and squeezed consumer demand, such as grocery, non-discretionary retail and some forms of manufacturing. However, the company also expects to see increased activity for more specialist property types such as life-science labs, green energy generation facilities and gigafactories – not only in terms of funding options for disposals, but also for forward-funding new specialist facilities.

More broadly, the expected economic recovery this year is likely to lead to an inase in private equity-driven mergers and acquisitions activity, as well as increased availability of value accretive debt for leveraged net lease buyers. As a result, investors seeking de-risked long-term income are expected to engage in more sale and leaseback transactions across an increasingly competitive market.

Nick Compton, Head of EMEA Corporate Capital Markets at JLL said, “Over the last couple of years, commercial real estate markets have been impacted by the challenges faced by the global economy. Businesses have been selling their real estate to reduce debt and unlock capital but have struggled to get the same value for their properties that they would have 18 or 24 months ago.

“As we look ahead, we still expect to see corporate disposals, especially where real estate is controlled by private equity firms. If the broader economic recovery materialises as anticipated, however, we will start to see the market stabilise and confidence from buyers and sellers grow, with particular opportunity for investors in specialist sectors.”

Click here to download the report.