High potential: company-owned real estate

Investors need not despair, however–at least not yet. Although global property advisers constantly emphasise the wall of money hanging over the sector, there is also huge potential to create new products, claims Nick van Ommen, outgoing CEO of the European Public Real Estate Association EPRA. Research from the Amsterdambased organisation indicates that in Europe alone the corporate sector has property assets with an underlying value of some seven trillion Euros which could potentially be spun off. “Even if a small fraction of that figure is brought to the market, it will still be a significant sum”, he said.

InterContinental not only sold their hotel real properties to Morgan Stanley; UBM and Warimpex were also able to increase their InterContinental Warsaw shares to 50 percent.

The hotel sector is one clear example where corporate real estate value can be unlocked and more sectors are following. A growing number of European retailers are now getting in on the act. French-based Casino was one of the first retail concerns to take steps in that direction, and Tesco (UK), KarstadtQuelle (Germany) and Coop (Sweden) have since followed. In recent months, both Carrefour and Sainsbury’s have repeatedly hit the headlines as shareholders take up arms for a battle over their real estate portfolios. The combat zone is expected to spread to other corners of the corporate universe. “Management in all sectors – whether it be pharmaceuticals, oil or chemicals – is coming under growing pressure to use shareholders equity to produce the best product they can”, notes Nick van Ommen. “That does not mean using it for real estate. There are some interesting portfolios around. Everybody’s looking for new product, there’s so much money and the yield compression we’ve seen can’t go on forever.”

When it comes to unleashing corporate real estate value, European corporations significantly lag behind their US counterparts. In the US, only 25 percent of the corporate sector still has its real estate on their balance sheet. In Europe, the figure is 75 percent. The reason for this is believed to be cultural. In general, Americans are far less attached to their property than Europeans are. In Europe, an owner-occupied head office is still seen as something of a status symbol whereas in the US moving real estate off balance has for years been driven by operational rather than emotional factors. But globalisation and developments such as the introduction of the Sarbanes-Oxley Act are forcing companies to get a better grip on operational processes, including the real estate process.