SLB Capital Advisors Managing Partner Scott Merkle indicated a positive outlook for the sale leaseback market in 2025, projecting a slight increase in transaction volume over the approximately 600 deals completed in 2024. This uptick is expected to potentially exceed the average of roughly 700 transactions seen in prior years, although the final count for 2024 is still being finalized.
Private equity firms with substantial capital reserves are poised to actively pursue investment opportunities, which is anticipated to spur deal activity across various sectors in 2025. Sale leasebacks are increasingly becoming a strategic tool for these firms to optimize returns. Additionally, if the U.S. economy maintains its post-COVID recovery trajectory, the improved financial health of companies could lead to a greater number of sale leaseback transactions as businesses seek to unlock equity and fortify their balance sheets.
Corporate sale leaseback transactions are becoming more attractive due to elevated long-term interest rates, as exemplified by the 10-year Treasury rates. Companies with owned real estate can access funds at implied capitalization rates that are more advantageous than traditional financing options. The funds procured through these transactions can be utilized for growth, mergers and acquisitions, or debt reduction, which could contribute to an increase in the volume of sale leasebacks.
The political landscape will also play a role in the growth of sale leaseback transactions. The potential extension of the Tax Cuts and Jobs Act (TCJA) or a further reduction in corporate tax rates under a Republican presidency and Congress could significantly enhance earnings, especially for lower middle market companies. However, proposed trade policies and stricter immigration laws may introduce new challenges by increasing production costs and inflation, which could temper economic optimism.
Despite these potential challenges, the sale leaseback market remains a viable option for companies seeking to navigate the complex financial and operational environment. With cap rates expected to range between 7.00% and 9.00%, representing approximately 11x to 14x implied real estate multiples, these transactions offer favorable arbitrage opportunities for middle-market and larger entities. The combination of private equity activity, economic recovery, and the benefits of corporate sale leasebacks are key factors contributing to the positive outlook for the sale leaseback market in 2025.
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