Recent years have seen an increased focus on sale and leasebacks which may well prove to be a favourable option for businesses and investors alike.
Several domestic and foreign investors have their sights on Denmark when contemplating property investments. Because of a stable economy and political consensus along with a fixed exchange rate to the euro, the Nordics in general, and Denmark in particular, are safe-haven investment destinations compared to many other countries.
In the sale and leaseback segment, foreign investors are typically the first to cross the finishing line, snapping up the property in question, as illustrated in the figure below, with foreign investors being the predominant net buyers of sale and leaseback properties in 2021.
We witness this interest also on the Danish island of Funen, where storage and logistics facilities have been in particularly strong demand in recent years. However, supply has been slow to match this demand.
The advantages of sale and leaseback
In a sale and leaseback transaction, a company sells the property from which it conducts its business to an investor to become tenant in the property rather than remaining the owner.
The company sells its business premises to a third party to free up liquidity, which may contribute to growth, expansion, or modernisation of production plant, alternatively a favourable “financing model” ahead of generational succession.
Another motivation factor may be the owner’s intention of optimising the value of the operating business, in which connection it makes good sense to sell the premises ahead of selling the business, as real business KPIs stand out more clearly, thus supporting the actual market value of the operating business.
The typical buyer is a professional property investor, and mainly high-volume properties often sell to major domestic or foreign property investors.
In the current market, investors generally demand both high-volume and medium-volume sale and leaseback investment opportunities. Due to the substantial demand, businesses can achieve lucrative prices when selling and leasing back their business premises.
More than anything, investors are in pursuit of well-located storage and logistics facilities, modern production facilities as well as modern office properties in top locations.
In addition, the rise in interest rates has caused many investors’ yield requirements to edge up slightly, meaning that they achieve a slightly higher income return relative to the return achievable on e.g., residential properties. Moreover, the interest rate level is one of the factors causing a shift in investor demand away from e.g., traditional residential properties to commercial properties, including sale and leaseback investment opportunities.