Skip Ribbon Commands
Skip to main content

News Release

UAE

Popularity of Sale and Leaseback Rises with Greater Market Transparency and Increased Investment Demand, According to JLL


​​​JLL, the world's leading real estate investment and advisory firm, reports that the number of real estate Sale and Leaseback (SLB) transactions undertaken by corporate entities is rising in the GCC and that these types of transactions will form a significant part of the institutional sale volume in coming years.

The practice, common in mature real estate markets, involves the sale of an owner occupied corporate real estate asset, which is simultaneously leased back for a medium to long term period by the seller. SLBs enable corporates to release cash locked in illiquid real estate to invest back in their core business where the returns are superior to property. Additionally, it allows for the lightening of the balance sheet and improvement of the return on assets, as well as allowing for reduction of tax liability by using rent as an expense. In the past few years, we have seen these transactions undertaken by school operator GEMS, grocer Azzizah Panda, dairy company Al Safi Danone and retailer Jarir. At the same time, this can be applied to other real estate asset classes, including offices, hotels and healthcare facilities.

The growth in these types of transactions is due to corporate entities becoming more comfortable with long term lease agreements and the lending institutions becoming more cautious on name lending. At the same time, there is also significant interest for such assets within the investor community, thus driving demand for this product.

Mr Gaurav Shivpuri, Head of Capital Markets at JLL MENA, said: "Given the low interest rate cycle we are currently in and the fact that real estate capitalization rates are at the lowest they have been in the past decade, we believe it to be an opportune time for entities that would like to lock in lower rent payments, to consider such transactions and free up cash to invest in their core business. Additionally, in instances in which investors are chasing income producing real estate assets, a corporate entity has the flexibility to structure an SLB to suit their preferences including tenure, escalations, breaks and buy back options. However, as the interest rates move up, we expect the capitalization rates to follow, driving up the rental costs."

 

– ends –

 

​