UK retailers gamble on sale-and-leaseback deals despite rising risks

UK retailers are increasingly turning to sale-and-leaseback deals to free up capital from property assets. In early 2023, supermarkets alone put £400 million worth of stores on the market under such agreements. But the strategy carries risks, as seen in the collapse of car park operator NCP after years of mounting lease obligations. The trend began in the early 2000s when major supermarket chains started selling off owned properties to raise funds. Asda, which owned around 40% of its stores, sold locations to its parent company Walmart and later explored a merger with Sainsbury's in 2016—though the deal was blocked. Morrisons, owning about 80% of its sites, also adopted leaseback arrangements to unlock capital. These moves allowed both chains to reinvest in operations but left them exposed to rising lease costs over time.

By contrast, competitors like Tesco retained more freehold properties, reducing their vulnerability to lease fluctuations. The risks became clearer in December 2022 when S&P downgraded Asda's credit rating deeper into junk status, citing weak operational recovery and the financial strain of long-term leasebacks. The pitfalls of such deals were starkly illustrated by NCP, the UK's largest car park operator. In 2002, Cinven acquired the company, funding the purchase by selling and leasing back £600 million of car parks. Over the next two decades, NCP's unavoidable rent bill ballooned from £45 million to £1.3 billion—despite revenues stagnating at £187 million, the same as in 2002. Changing consumer habits, including remote work and ride-hailing apps, further weakened demand. By January 2023, NCP had collapsed into administration.

The surge in supermarket leaseback deals highlights a shift away from traditional property ownership. Yet NCP's downfall serves as a warning about the long-term costs of such agreements. With Asda's credit rating under pressure and Morrisons continuing the strategy, the financial impact of these commitments remains a key concern for retailers.