Allan Saunderson is managing editor of Property Finance Europe and a contributor to GlobeSt.com.
LONDON-Rising public debt levels in response to the global banking crisis and recession is likely to continue to encourage a new wave of government property sales across Europe, according to new research from CB Richard Ellis.
The report follows the UK government's announcement that it is to sell up to £20 billion of commercial property and related assets during the next 10 years while generating a further £5 billion in annual operating cost savings. With other governments also developing similar plans, the report analyzes the investor appeal of such assets in the current market and considers the potential for these dispositions to become a more powerful global trend. The CBRE report, Governments Turn to Property Sales? considers the scope for sales of state in major markets including France, Germany, Greece and the UK.
"With concerns being expressed about the depth of investor appetite for government bonds, selling off real estate could be a means of raising much-needed capital," said CBRE Head of EMEA Research Nick Axford.
Almost €16 billion of state-owned real estate was sold in 2006-08 across Europe, against under €4 billion in 2003-05. In 2004, European sale and leaseback volumes totalled €6.7 billionn, largely through a small number of large deals. By 2007 that had risen to € 46 billion and comprised more than 670 separate transactions, boosting occupier real estate disposals in the European investment market – aggregating government and corporate sales - to nearly 20% in 2007 compared to 6% in 2004. Although part of this growth was due to rising property values, in 2008 - a year of significantly reduced investment turnover and a fall of around 13% in average commercial property values – S&L deals still totalled over €22 billion and maintained a 19% share of the European investment market.
CBRE Head of Corporate Strategies John Wilson commented: "With investor demand for vacant property currently more limited and prices at low levels relative to historic norms, sales of surplus property could be harder to achieve."
Yet sale and leasebacks of good quality occupied stock could be attractive to investors and the current financial climate may actually enhance the opportunity for governments to sell and leaseback assets. Investors are highly risk-averse and focus demand on prime property in liquid transparent markets.
"Public authorities are often the ideal candidates to offer long, secure income streams from quality covenants," he added. "For investors who fear the prospect of rising government bond yields and/or a higher level of inflation in the years ahead, a building let to the state on a long lease has attributes similar to index-linked government bond, with the benefit of owning a real asset at the end of the lease.
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