Occupier sales and leasebacks of buildings are a relatively untapped source of corporate funding in Europe and could hold the key to a revival in commercial property trading, a leading property advisor said on Thursday.

“The reality is that for a corporate, sale and leasebacks are non-repayment sources of capital at rates that can be below layers of their borrowings from banks,” said John Wilson, head of corporate strategies for CB Richard Ellis(CBRE), the world’s biggest property services firm.

With debt and equity markets in turmoil, corporate sales and leasebacks were a record 21 percent of all commercial property buying and selling in Europe in the first half of 2008, Wilson told Reuters via email.

The sector’s increased market share equated to just 14 billion euros and was inflated by the fact that the overall European market almost halved compared with the first six months of 2007, due to the global credit crunch.

But with 2.25 trillion euros ($3,195 billion) of outstanding European commercial property still in occupier hands, the long-term trend for the sector remained positive, Wilson said.

“The second half has been quiet in terms of transactions… but in terms of new clients it is steady and still growing for deals later this year and in 2009,” he said.

Wilson said the high cost of debt and several recent examples of sales and leasebacks in the financial industry has made selling real estate more acceptable to European companies hungry for capital.

Among these high-profile deals was the 4.4 billion-euros sale by Spain’s Banco Santander of 1,156 properties, including its headquarters outside Madrid, which CBRE advised.

Other examples included Royal Bank of Scotland’s agreement to sell and leaseback 62 of its branches and Metrovacesa’s purchase of HSBC’s London headquarters for a record 1.09 billion pounds ($1.94 billion).

LANDLORDS

Although Metrovacesa and others could now be facing a huge paper loss due to a ferocious correction in the London office market while Lehman’s bankruptcy raises the spectre of financial tenants defaulting on leases, sales and leasebacks could also make sense for landlords in the current challenging environment—as long as the price was right.

Wilson said Europe’s property scene was now dominated by cash-rich investors who liked the longer leases, strong covenants, and operational flexibility that sales and leasebacks could offer—such as pension, sovereign-backed Middle Eastern, and open-ended German property funds.

“Fact is the market has shifted up the value ladder from a corporate quality perspective, inspired by the high-profile deals over the last two years, and as long as corporate sales and leasebacks have good or reasonable covenants and the real estate isn’t a liability then these deals work for both sides,” he said.

In a separate report due to be published on Friday, CBRE said sale and leaseback activity in Europe was becoming more diversified geographically, with the mature UK market relinquishing its leadership to Germany and business picking up in Spain, France, Italy, Sweden and central and eastern Europe.

CBRE also said the office property sector continued to dominate the sector but that sale and leasebacks of retail property were becoming increasingly important, accounting for 29 percent of all activity in the first half of 2008.

Britain’s largest retailer Tesco said last month it had raised 605 million pounds in four UK sale-and-leaseback property deals, taking its total to nearly 2 billion pounds out of a targeted 5 billion pounds by 2011.