Iberia is firmly back on investors’ radar screens as economic recovery in Spain benefits the real estate sector and the retail market in particular, while Portugal catches up and begins to attract significant foreign interest.
Iberia is firmly back on investors’ radar screens as economic recovery in Spain benefits the real estate sector and the retail market in particular, while Portugal catches up and begins to attract significant foreign interest.
These were the key themes discussed by a panel of experts at PropertyEU's Southern Europe Investment Briefing, which was held in London on Tuesday at the City offices of TIAA Henderson Real Estate.
‘The investment market has raced ahead of economic fundamentals but what is important is that the fundamentals are now catching up,’ said Alfonso Brunet Morales-Arce, head of investment for Spain at Pradera Management Spain.
The retail sector saw turnover growth of 4.8% and footfall up 3.3% in Q1 2015, according to CBRE figures. Pradera’s figures for the same period reveal a 6% increase in turnover and a 10.4% average effort ratio. ‘There is nowhere else that investors can get that type of return,’ he said. ‘And there is still growth ahead, as retail chains are expanding fast, taking advantage of rents which are at their lowest point.’
The biggest problem in Spain is the shortage of quality assets. Even in the office sector in Madrid and Barcelona, ‘the quality of the stock would not pass the US investor test,’ said Roger Cooke, board member of Lar Espana Real Estate and senior adviser to EY. ‘Rents for good offices will increase, but I think the retail market will come back even stronger.’
As quality assets are few and competition for them is intense, investors are now looking at opportunities on the development side and at value-add in the secondary market. ‘As financing is widely available, the logical next step is redevelopment and land acquisition,’ said Alexandre Fernandes, had of asset management at Sonae Sierra. ‘We have a five-year plan to invest €170 mln to convert secondary schemes into prime schemes, as well as investing in secondary locations.’
Another positive development in Spain has been the broadening of the market into alternative areas, such as the conversion of theatres and cinemas into retail centres. ‘New players who were reluctant to come to Spain are now looking at different assets to redevelop and change their use,’ said Alfonso Fernández-Puebla, partner at Gómez-Acebo & Pombo Abogados. ‘There are different funds with different interests coming in, which helps the market to grow, and they are medium to long-term investors, not opportunistic.’
The retail story applies to Portugal as well. The economic recovery is consolidating, with a +1.6% GDP growth forecast for 2015, and consumer confidence is coming back. ‘Sales in shopping centres were up 5% and rents have touched bottom, so we believe this sector presents significant opportunities,’ said Fernandes of Sonae Sierra. ‘In Portugal the economic fundamentals are ahead of capital in terms of income growth and capital appreciation. My prediction is that a lot of investors frustrated with Spain will turn their attention to Portugal, where there is no shortage of assets.’