UK supermarkets bet big on sale-and-leaseback deals despite financial risks
UK supermarkets are increasingly turning to sale-and-leaseback deals to raise capital and restructure their finances. This trend comes as long-term lease commitments face closer scrutiny, following high-profile struggles like NCP's collapse in early 2023.
The strategy has reshaped ownership models across major chains, with billions in property sales over recent years. NCP, one of Britain's largest car park operators, entered administration in January 2023 after years of financial strain. Its revenues in 2023 matched those from 2002—£187 million—despite two decades of operation under private equity firm Cinven. A key factor in its downfall was a £600 million sale-and-leaseback deal in 2002, which locked the company into long-term rents. By 2023, its unavoidable lease obligations had ballooned from £45 million to £1.3 billion. Shifts in transport habits, such as congestion charging, remote work, and ride-hailing apps, further weakened demand for its services.
Meanwhile, supermarkets have embraced similar deals to free up cash. Tesco reduced its owned properties from around 20% to 10% over five years, raising £1.5 billion—including £971 million in 2022 alone. Sainsbury's sold over £600 million in assets and formed a £1.8 billion joint venture in 2024, moving entirely to leasehold. Waitrose, part of the John Lewis Partnership, completed £470 million in sale-and-leasebacks between 2021 and 2023, cutting its property ownership from 40% to under 20%. These moves aimed to strengthen balance sheets and fund investments.
Asda and Morrisons have taken a different approach, retaining higher ownership stakes. Asda owns about 60% of its stores, while Morrisons owns roughly 80%. However, Asda's credit rating was downgraded by S&P in December 2022 due to slow operational recovery and risks tied to leaseback agreements. Despite concerns, UK supermarkets closed £400 million in sale-and-leaseback deals in just the first quarter of 2023, signalling continued reliance on the strategy.
Analysts warn that while such deals provide short-term liquidity, they also introduce long-term financial risks. The collapse of NCP serves as a cautionary example of how fixed lease costs can become unsustainable over time. The rise in sale-and-leaseback deals reflects supermarkets' efforts to adapt to financial pressures and changing retail landscapes. With billions already raised through property sales, the sector's shift toward leasehold models is expected to continue. However, the long-term impact of these commitments remains a critical consideration for investors and credit agencies alike.
