real estate strategy


firm’s balance sheet, with rent displayed as a liability. This produces a further consideration for businesses considering sale and leaseback. “The International Accounting Standards


Board has been consulting on bringing operating leases onto the balance sheet for years,” said Day. “It’s a general trend towards transparency and it’s very likely to happen. As a result the responsibility of leasing a property is likely to become more onerous. It explains why many companies are looking to keep hold of their real estate or even buying in to the market.”


Lease accounting changes


Tim Carnegie, director of corporate consulting with Jones Lang LaSalle, believes the proposed changes to lease accounting are starting to become a factor with corporate real estate strategies but that hasn’t diminished from firm’s appetites for sale and leaseback in the current market. “The proposals are starting to feature in real estate strategies although it’s not at the top of the agenda just yet,” he commented. “Lease lengths are starting to be affected but it’s going to be the same for everyone. Certainly we have seen an increase in sale and


leaseback activity in recent months.” With an over-supply of stock, set against a backdrop of swathes of struggling businesses, a large number of commercial landlords have been forced to offer more flexibility to current tenants, both in terms of rents and lease lengths. A somewhat depressed rental market is also reflected in property values however, which may encourage businesses to see out the brunt of the downturn before they contemplate sale and leaseback. A property portfolio may have a


strategic importance to the success of some businesses, which may produce an incentive to own. A strategic location can offer prestige and cultivate consumer confidence, while sale of real estate inhibits the ability of businesses to expand to their own specific requirements. The strength of department store Liberty’s business would likely be diminished if it was to re-locate from its distinct Regent Street locale to a standard unit in a shopping centre. Specialist businesses or those with


bespoke properties may find demand for their real estate limited due to their unique nature or character, making sale and leaseback a less attractive proposition. Some businesses will seek to maintain a prime, enviable location, while


Although the tax impact of selling a property should not be under- estimated, sale and leaseback can offer crucial tax advantages, with rent offset against profit in a company’s annual accounts.


corporate behemoths such as Tesco are often accused of stockpiling land without immediate plans for development. That said, Tesco recently raised close to £1bn from the sale and leaseback of a number of its stores as part of an ongoing initiative to release value from its UK property portfolio.


Pretty vacant


For vacant properties, commercial enterprises have the option to sell or lease on the basis of whichever would provide the more significant boost to the core business. Large properties may limit the number of buyers but provide the option to sub-let individual floors if sale and leaseback is entered into. Listed buildings are not liable for business rates while empty, which should remove a degree of urgency from their disposal. With human error and random events


to contemplate, coupled with an unsteady market, it’s a lucky man who can foresee a beneficial corporate real estate strategy to emulate those which have benefited firms like HSBC to such an extent. But with the investment opportunities a downturn brings, the current market is likely to see many astute real estate strategies pay dividends.


www.pm-select.co.uk l september 2010 l Property Management Select l 35


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