Are we nearing the end of corporate property ownership?
Nick Compton, Head of Corporate Capital Markets EMEA, takes the lead in voicing his opinion in our series of One Voice articles
It could appear that way as the number of owner occupiers continues to dwindle. Occupier sales of owned real estate is a growing trend across EMEA, with a record €29.2 billion raised from more than 670 sales in 2021.
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.
What’s more, there’s no shortage of investors chasing more stable income-generating real estate – and there are more landlords around today who understand the unique needs of different industries and can grasp and respond to their complex needs.
At the same time, long-income investors who specialize 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.
For me, all of this suggests that corporate ownership of real estate could continue to decline in most markets, and across an increasingly broad range of buildings.
Not a done deal
However, like most sectors of real estate, the reality, I feel, is more nuanced and there are variances depending on business sector.
Take the tech world for example, where the likes of Facebook and Google have recently bought the freehold of their own buildings in Dublin and London. In Poland, Google is investing €583 million to purchase and expand its Warsaw HUB office complex. Their 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.
For some in 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.
The financial element is also of course 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.
Whilst 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 those more complex industries and sectors, such as automotive, pharmaceutical and R&D, owners are finding that 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 £170 million sale and leaseback deal for its prestigious Woking Formula 1 and automotive factory.
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.
As more priority is given to health and wellbeing and providing optimal office environments that support hybrid working – I expect we will see more sales activity of assets which no longer fit the grade.
So, are we nearing the end of corporate property ownership? Yes, I think corporate ownership will continue to decline. There will always be exceptions and specific logical reasons to own. In the main, however, businesses have very little reason to tie up working capital in buildings.