Sale and leaseback to market cap rate ratio in emerging markets – an empirical study in Vietnam

Abstract

Purpose

This study hypothesises that sale and leaseback (SLB) cap rate is lower than the market cap rate in emerging economies, and the difference is due to institutional cost and vacancy risk. This study aims to provide a novel SLB-Cap-Rate Model to assess the performance of SLB transaction (SLBT).

Design/methodology/approach

SLBT data are generally not publicly available in developing countries. This study collected data from 31 SLBTs by conducting semi-structured interviews with stakeholders in Vietnam in 2019. The market cap rates were collected from consultants' reports. The hypotheses are tested by three regression models.

Findings

The results show that the SLBT cap rate is significantly less than the market cap rate in Vietnam, and most of the cap rate discount can be explained by institutional and risk factors. This suggests that SLBT helps to reduce search costs for tenants and vacancy risks. It explains why SLBTs are becoming more common in emerging countries.

Practical implications

The study has a strong practical implication for assessing the performance of SLBT for both buyers and sellers. It introduces a novel model for analysing the cap rates and potential risks of SLBT to facilitate property investment decisions.

Originality/value

This paper is one of the studies that contains new knowledge on SLBs in a developing country specifically Vietnam.

Citation

Truong, Q.L. and Yiu, C.Y. (2022), "Sale and leaseback to market cap rate ratio in emerging markets – an empirical study in Vietnam", Journal of Property Investment & Finance, Vol. 40 No. 2, pp. 220-236. https://doi.org/10.1108/JPIF-03-2021-0019