According to global property consultant CBRE, following a steady flow of sales in 2020, corporates across Asia Pacific increased their real estate disposal activity in 2021. 762 deals worth a combined total of $44.4 billion were completed as sellers capitalised on strong pricing to offload assets.
Pandemic accelerates selling activity
CBRE reports that while pandemic-related uncertainty led to Asia Pacific commercial real estate investment volume falling by 6.5% y-o-y in 2020, corporate sales activity accelerated by 53% y-o-y over the same period, with strong momentum continuing into 2021. This was mainly due to the pandemic prompting many corporates to strengthen their balance sheets in response to the significant disruption caused to their businesses by lockdowns and other measures to contain the spread of COVID-19.
Motivation for disposals differs compared to that for sale leasebacks
Around 73% of corporate sales activity in Asia Pacific in 2021 involved disposals (owner vacating). Deals generally saw corporates disposing of older assets that nevertheless commanded strong pricing thanks to upbeat market conditions, with buyers mostly investors undertaking value-add or development/opportunistic strategies.
Sale leaseback deals accounted for the remaining 27% of corporate sales in 2021, with companies adopting this strategy motivated by a need to enhance their balance sheet and reinvest into their core business. The buying parties in sale leaseback transactions were predominantly core funds and institutional investors, says CBRE.
Positive market conditions
Asia Pacific commercial real estate has performed well throughout the pandemic, with pricing across most geographies and sectors close to record highs as of Q4 2021. With almost every market in the region at or within 50 bps of the 20-year low yield, these upbeat pricing conditions are encouraging corporates to sell down their real estate assets.
The pandemic has prompted corporate real estate occupiers to review their operational footprint across leased and owned portfolios. Many corporates have subsequently implemented portfolio optimisation strategies, which has resulted in the identification of self-owned facilities, particularly in the industrial and manufacturing sectors, that are no longer fit for purpose. This has been the catalyst for corporates to plan strategic exits either via short-term leasebacks or vacant possession disposals.
With yields remaining elevated across Asia Pacific, corporates have taken the opportunity to liquidate their real estate holdings to increase cash on hand for their core business. Corporates are recycling capital generated from asset monetisation as they are either seeing higher returns in their core business or require funds for M&A.
Many corporates have identified opportunities to book a gain on sales via asset monetisation as an avenue to simultaneously raise capital and enhance reporting profits. While other debt solutions may be just as economical as asset monetisation, these traditional forms of debt do not enable corporates to enjoy the upside of profit enhancement. Even despite the latest lease accounting standards (IFRS16 & ASC 842), which require all corporates to record lease liabilities on their balance sheet, corporates increasingly view sale leasebacks as an alternative and more efficient way of raising capital while enhancing profits, says CBRE.
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