A surge in sale and leaseback transactions is expected across Asia Pacific in the second half of 2020 as owners look to unlock fixed capital and generate cash flow, says JLL.

JLL Head of Markets for the Asia Pacific, Jeremy Sheldon, said the impact of the COVID-19 pandemic was already leading to a notable rise in corporate real estate divestment opportunities as owners looked to solidify liquidity positions and maximize working capital, and investors actively examined re-entry opportunities to deploy capital through sale and leaseback transactions.  

At a glance:

• JLL has reported seeing increasing demand by corporates to release capital from their real estate portfolios.
• Record amounts of dry powder capital and investment appetite for stable and income-producing assets will continue to fuel demand for corporate sale and leaseback activity.
• With the onset of the COVID-19 and throughout the first stages of recovery, most investors are operating via cautious deployment strategies, even as they seek to expand their exposure to Asia Pacific real estate.

“Corporate owners and occupiers are actively seeking new sources of liquidity and greater flexibility across their real estate portfolios," he said.

"As many continue to re-evaluate their business models and look to maximize working capital during this time of uncertainty, real estate is viewed through a different lens, whereby it can provide both a source of immediate cash flow and tenancy flexibility.

"Hence, corporate sale and leasebacks are likely to play a significant role in the market's recovery and stability.” 

Sales of corporate-owned real estate in Asia Pacific average approximately $17 billion per annum over the past five years, according to Real Capital Analytics.

JLL says the sale and leaseback inquiries related to assets and portfolios in Asia Pacific has picked up significantly since early April, with inquiries spiking among corporates owners from various sectors such as automotive, electronics, media, retail and technology, across a diverse range of markets, including Australia, Greater China, Japan, Korea and Singapore.

Similarly, investors are increasingly looking to corporate sale and leaseback transactions as an attractive re-entry point to Asia Pacific real estate.

Pre-COVID-19, target allocations to Asia Pacific real estate rose consistently over the past years, with approximately $40 billion in dry powder capital is ready to be deployed into Asia Pacific real estate, according to JLL’s Asia Pacific Capital Tracker Q1 2020.

With the onset of the COVID-19 and throughout the first stages of recovery, most investors are operating via cautious deployment strategies, even as they seek to expand their exposure to Asia Pacific real estate.

Investors now favor lower leverage, diversification across geographies and asset classes, including alternative sectors, and most importantly, stable and income-generating assets.

JLL Capital Markets CEO for the Asia Pacific, Stuart Crow, said the clear preference for lower risk, core and income-generating assets was likely to support growth in the regional corporate sale and leaseback market into the second half of 2020 and through 2021.

“Despite broad economic uncertainty, investors have remained both calm and optimistic throughout the current environment," he said. 

"While cautious, our conversations with investors indicate that some are looking to increase their target allocations to take advantage of any dislocation. Increasingly, these market re-entry conversations have pivoted towards corporate sale and leaseback opportunities, a major theme already emerging in the broader global investment and occupier markets." 

"According to JLL, corporate sale and leasebacks remain at a more nascent stage in Asia Pacific, but throughout the COVID-19 pandemic, have been identified by both investors and corporate owners as a potential focal point in post-crisis real estate strategies."

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