Why investors and occupiers are teaming up to construct new buildings
Investors are collaborating more with companies seeking top grade property
Uncertainty over the past year caused some companies to press pause on plans to relocate or resize their operations.
But growing confidence is again spurring such decisions, with occupier interest in new, high-grade buildings on the rise.
“Companies are deciding that it now is the right time to make some significant changes to their business plans and consequently, their existing footprints,” says Nick Compton, head of corporate capital markets, EMEA at JLL. “And investors are increasingly stepping in to develop their real estate.”
Pre-leasing of space has become more common alongside a broader rise in sale-and-leaseback activity, Compton says.
“It requires conviction and confidence and an ability to look beyond the current uncertainty – and that applies just as much to landlords as it does to occupiers.”
From industrial and logistics to data centres, activity is rising. Europe’s largest ever build-to-suit scheme for a single occupier was agreed by Jaguar Land Rover in January. The 2.94 million square feet logistics centre in the UK is being forward-funded by global asset manager Intermediate Capital Group’s sale-and-leaseback fund.
In Scotland, Aberdeen Standard Investments is forward funding the £110 million (US$ 152 million) sale and leaseback of Next’s new distribution centre.
Late last year, Iron Mountain and AGC Equity Partners agreed to a €300 million (US$417 million) forward-funding arrangement to develop a new 280,000 square feet data centre in Frankfurt pre-leased to a U.S.-based Fortune 100 company.
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A slowdown in construction of high-grade office property during the past year has made sourcing new addresses a challenge for occupiers.
Partnering with investors through direct forward funding opens the opportunity for the occupier to have much greater input into the specification and design of the property.
“There’s an opportunity to have a say from the outset, which can be a big positive for companies with specific technical or environmental objectives or for those responding to new hybrid operating models,” Compton says.
And with a common complaint among investors being that there is simply not enough quality real estate to choose from, entering a forward-funded agreement for a new development is increasingly popular, Compton says.
“There’s been very little speculative office development activity, particularly in regional UK markets,” he explains. “That’s seen many locations become under-provided with high-grade space.”
With investor appetite high for secure rental income, future headquarters currently under development are also trading. In Paris, insurance group Unofi recently agreed to buy the global head office of vehicle pooling agency BlaBlaCar, due for completion at the end of this year.
Green forward thinking
The forward-funded model allows access to quality opportunities where sustainability credentials are higher. And agreeing now to move in two years’ time allows companies to make sure they are getting the most-up-to-date building in terms of energy performance and certification, Compton says.
In the UK, a retail asset forward-funded by long income focused LXi REIT will incorporate energy efficiency features including solar paneling to rainwater harvesting and EV charging points when completed in 2022.
“Net-zero obligations have been accelerated by the pandemic; all companies are far more focused on this now, with many bringing forward net-zero deadlines,” says Compton. “Investors have been on the same journey too and are setting their own higher standards in both the assets they invest in and the tenants they have in their portfolios.”
While all sectors are seeing the forward-funding model take hold, specialized assets, such as laboratories and research and development, could play a big part in the forward funding market, Compton adds.
“Historically, science parks have often been self-delivered by owner-occupiers,” he says. “But that could change, as more managers and developers who can deliver and be trusted, begin to emerge.”
Contact Nick ComptonHead of corporate capital markets, JLL EMEA
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