COMMENT The number of owner-occupiers continues to dwindle. Occupier sales of owned real estate is a growing trend across EMEA, with more than 670 sales in 2021, totalling a record €29.2bn (£24.8bn).
Big changes are afoot as corporates wrestle with challenges such as net zero, hybrid working and supply chain resilience. The pace of change is fast, triggering some serious rethinking.
Moreover, there’s no shortage of investors chasing more stable income-generating real estate – and there are more landlords around today that understand the unique needs of different industries and can grasp and respond to their complex demands.
At the same time, long-income investors that specialise in sale-and-leasebacks are emerging to become partners for years rather than months, with some particularly focused on critical assets, from data centres to giga-factories. All of this suggests corporate ownership of real estate could continue to decline in most markets, and across an increasingly broad range of buildings.
Exceptions to the rule
But it’s not a done deal. Like most sectors of real estate, the reality is more nuanced and there are variances depending on business sector.
Take the manufacturing world. It’s often the case that companies own their real estate to retain control and allow maximum flexibility. Just look at an aerial shot of a production facility from, say, 1999 and then compare it with today. Buildings will have been demolished, expanded or converted depending on business needs. This need for control over their own agility is key – particularly in a changing, fast-paced world.
There’s also the tech world, where the likes of Facebook and Google have recently bought the freehold of their buildings in Dublin and London. In Poland, Google is investing €583m to purchase and expand its Warsaw HUB office complex. Its large, modern buildings are well-located in attractive, busy central business districts, support ESG requirements and encourage collaboration and social interaction – important values for the industry.
The financial element is also a huge factor, with greater focus on deploying capital in business and real estate historically seen as an alternative source of funding, driving sale-and-leaseback activity. And in a world facing higher interest rates, even more onus by owners could be put on this approach.
While public companies face huge external pressures, the complexity of these business can mean actions take time to execute. Private equity-owned companies may be quicker to make decisions about ownership of their buildings and those private businesses with no external shareholders, often family owned, can frequently do things at their own pace.
In more complex industries and sectors, such as automotive, pharmaceutical and R&D, owners are finding there is a sub-set of buyers for an ever wider range of property types and risk profiles. Last year, British racing group McLaren agreed a £170m sale-and-leaseback deal for its prestigious Woking Formula 1 and automotive factory.
New world
A rethink is at play in industries that still have significant portfolios of owned offices, such as in consumer goods and pharmaceuticals, where many offices date from 1990s – a time when hybrid working and net zero ambitions were not factors.
Often located away from city centres, employees in these corporate campuses are faced with car-based commutes and often limited monocultural amenities that don’t compare favourably in a post-Covid world of flexible working – we can see it is far easier for companies to encourage their staff back to CBD-based offices than those on business parks.
With more priority being given to health and wellbeing and providing optimal office environments that support hybrid working – we will see more sales activity of assets which no longer fit the grade.
So are we approaching the end of corporate property ownership? Yes, corporate ownership will continue to decline. There will always be exceptions and specific logical reasons to own. However, for the most part, businesses have very little reason to tie up working capital in buildings.
Nick Compton is head of corporate capital markets, EMEA at JLL
