The signals have turned to green in the Spanish real estate market, but polarisation and retail stratification are set to increase, warns Grosvenor in its latest global outlook
The signals have turned to green in the Spanish real estate market, but polarisation and retail stratification are set to increase, warns Grosvenor in its latest global outlook
Commenting on the weight of international capital now targeting Spain, the report's author Beatrice Guedj notes that the shopping centre market will likely provide attractive returns. But although consumer confidence is growing and retail sales in Spain are likely to expand at a strong pace until the end of the year, in the medium term, the magnitude of the recovery in sales will be uneven among locations as well as retail premises, she predicted.
‘Latest transaction offers suggest that the retail market is definitely the sector most in favour, probably due to structuring through Socimi vehicles, which are highly tax efficient for large asset deals or portfolios. For almost 80% of the shopping centre asset sales, the offers were above the latest valuation, with a deviation of between 10% to 40% from valuation levels. Although a short premium mirrors the desire to enter the market, some bids for shopping centres suggest a lack of local knowledge or a new irrational exuberance as regards rental growth. As most of the indicators have turned green, there is probably a naïve belief that this will feed down to every region and shopping centre scheme.’
Guedj is more upbeat about the high street shop submarket, which she believes will be the largest beneficiary from the recovery. 'Grosvenor research demonstrated the strong resilience of the sector, which exhibits a strong risk adjusted return and one of the highest sharp ratios over time (1.5 in Spain and above 2 in some locations) over the past two decades. Even during the recession, ERVs (estimated rental values ed.) remained stable or increased in prime locations given the high willingness of domestic and international brands to locate flagship stores there.'
Prime rents in locations such as Passeig de Gracia in Barcelona and Calle de Serrano or Gran Via in Madrid are between €2,500 and €3,000 per m2, she noted. 'This remains low internationally when compared to cities such as London or Paris. The underlying drivers of such growth in high street shop submarkets in cities like Madrid, Barcelona, as well as Malaga or other coastal cities are both related to a higher income per capita and a strong tourism effect. Returns in the high street shop submarket will be driven by strong income returns and capital returns as these assets will move from the core to the trophy status. The downside is that this market is mostly accessible by local players, with a strong and long track record in Spain.'