London—Sale-leaseback and single-tenant property sales are on the rise in Europe and there are no signs the trend is likely to end."There's been a huge increase in that kind of activity," says John Knowles, a London-based director in the Europe, Middle East and Africa capital markets group of DTZ, a global real estate services firm. "For the next 12 to 18 months, I don't see a slowdown."

About two years ago, DTZ researchers estimated there was approximately 5 billion euros of this kind of sale-leaseback or outsourcing activity annually. They predicted that figure would grow to about 10 billion euros this year and 15 billion euros in 2008. But now, Knowles says, he expects the figures will be more like 15 billion euros this year and 20 billion euros next year. The firms has been "absolutely overwhelmed" with calls from corporations wanting help in monetizing their real estate, he adds.

Several factors have been driving the increased activity, Knowles explains, including the strength of the global real estate market and the sheer amount of liquidity chasing property. In addition, considerable private equity and M&A activity are altering the way corporations operate, leading to an increased outsourcing of their real estate. Third, there are accounting issues, says Knowles, since most real estate has been held at acquisition cost or book value, and not actively managed or revalued.

"There's a huge store of real estate on corporates' balance sheets," he notes. "That means there's a hidden store of value at these corporates."

Sale-leaseback deals in Europe are making more and more headlines as a result. According to numerous published reports, London-based aAIM Group struck a sale-leaseback agreement with Nottingham-based Pendragon PLC, Britain's largest car dealer. The deal is reported to involve 115 properties, including dealership sites, vehicle repair locations and its main offices, that Pendragon will lease back for terms of 18 to 25 years. They are reportedly valued at 400 million pounds or approximately US$804 million. Pendragon operates around 400 dealership sites under such brands as Evans Halshaw and Stratstone, the latter selling high-end autos like Aston Martin, BMW and Jaguar.

In Norway, the country's largest financial services group, Oslo-based DnB NOR, just sold its headquarters for 1.75 million kroners or roughly US $300 million. Oslo-based Norwegian Property ASA purchased the 341,000-sf asset at an initial yield of 4.45%, and DnB NOR says both Norwegian and international investors were among the potential buyers. The financial services firm plans to sell a number of other properties this fall.

In Germany, mail order and online retailer Neckerman has agreed to a sale-leaseback with UK-headquartered Segro for an office and distribution campus in Frankfurt. Segro will spend 197 million euros or about US$271 million to purchase the complex, which includes more than 3.33 million sf of office, warehousing, flex, data center and small retail space as well as land that can accommodate additional development. Neckerman occupies the entire site and will continue to account for much of the property's income with leases of at least 10 years, though some of the space is leased to Neckerman's contractors and other companies owned by Neckerman's parent company KarstadtQuelle AG, which was recently renamed Arcandor AG.

And while not a sale-leaseback, the biggest single-tenant deal to be announced in Europe in recent weeks is Derek Quinlan and Propinvest's agreement to purchase 25 Canada Square in London's Canary Wharf for 1 billion British pounds or roughly US$2 billion. Indeed, the transaction is said to be the second largest single real estate transaction ever in the UK, second only to the approximately US$2.16 billion sale-leaseback of HSBC Holdings PLC global headquarters at Canary Wharf's 8 Canada Square announced this spring. The 1.22 million-sf office tower at 25 Canada Square is leased in its entirety to Citigroup Inc., which uses it as its European headquarters, under a 25-year lease that expires in 2026 and has rent escalation reviews every five years. The Royal Bank of Scotland Group is the seller.

The current yield on the deal is "in the range of 4.5%," according to an announcement. Quinlan, who is the founder and executive chairman of Quinlan Private, a Dublin-based private equity and real estate group, pursued the Citigroup tower as a personal investment. He is splitting the deal 50-50 with Propinvest, a London-based property investment company. "This is a long-term personal investment in a prime property in the heart of London's new financial center," Quinlan states. "The quality of the asset is matched by the caliber of its long-term tenant, Citigroup, the world's largest bank."

Knowles says as a result of the increased investment activity and liquidity in the market, "there's been a huge yield compression" of between 150 and 200 basis points in the last several years. And while he suspects pricing may level off a bit, he also notes that rising interest rates around the world are likely to result in corporations looking to sell their real estate as a less expensive alternative to corporate debt.

There is still plenty of property on corporations' balance sheets in Europe. Knowles estimates the rate of owner occupancy to be approximately 30% in the US and 35% to 40% in the UK, but those numbers increase to between 40% and 50% for northern Europe and as high as 70% to 80% in countries like Italy and Spain. And then there's the rest of the world for investors to look at, of course. "I think you'll see it spread more globally," Knowles concludes.