A new wave of investment in Spain is targeting opportunities in the redevelopment sector to address the scarcity of supply, delegates heard at the PropertyEU Southern Europe Investment Briefing, which was held in London on Friday.
'Lack of product in all sectors, especially office and residential, is leading to a lot of repositioning and redevelopment of buildings, which in time will bring much-needed product into the market,' said Alfonso Fernàndez-Puebla, partner at Gómez-Acebo & Pombo. Both institutional money and opportunistic investors are moving into development.
'For the first time in nine years, we are seeing development of high-end offices outside the cities, in consolidated out-of-town locations, because there is high demand and no land available in city centres,' said José Navarro, Savills' managing director in Spain.
The reason retail has dominated foreign investments recently is the availability of supply with several shopping centres coming on to the market, while in other sectors there has been a real problem of supply. 'Retail is a more dynamic market, while a big chunk of the office sector is in the hands of insurance companies and other non traders who are unlikely to sell,' Navarro said.
Office rents are still low
Another visible trend in Spain is the move from city centres back out to the outskirts and cheaper secondary locations, in the expectation of higher rents. 'After the crisis rents fell significantly, so people moved from the outskirts into the centre,’ said Fernàndez-Puebla. 'Now as rents increase and continue to do so, people are moving out again.'
Office rents are still low by historical standards – in central Madrid the highest rents currently are €31-32 per m2, and the average around €28, according to Savills, while at the peak of the market in 2008 they were €42 per m2. In secondary locations the gap is even wider, with average rents of €16 per m2. But sentiment in the market is positive: 'A lot of foreign money as well as Spanish money is investing because they believe rents are now on a rising trajectory,' said Fernàndez-Puebla.
Investments are facilitated by the effective provision of finance to the RE sector. Spain is reaping the rewards of decisive intervention in the banking sector with the creation of a 'bad bank', and it is now the only country where the NPL ratio is down.
'Spain will get stronger because it has been through the most structural reforms and it shows,' said Bill Hancock, managing partner at Resolute Asset Management. 'There is significant capital available, both from banks and from the alternative lending sector.' The only problem in Spain, he added, is the political situation: 'For the property market to do really well political stabilisation is needed.'
Watch the video highlights of the Southern European briefing on our YouTube channel
