Spain is still in growth mode but last year's rush of foreign investments is giving way to a less crowded market in which opportunities are easier to find, experts agreed at the PropertyEU Southern Europe Investment Briefing which was held in London this week.
‘The Spanish market is phenomenal, how we went from the doldrums to everyone knocking on our door,’ said Marta Cladera, head of Portfolio Management Iberia at TH Real Estate. ‘But the interest from both local and international players is still there, the recovery is far from over, there is more to come in terms of rent increases and yield compression.’
Investment volumes reached some €12bn last year, but have slowed down this year. 'There was an extraordinarily deep pool of investors, a huge rush of people looking for fantastic bargains, but not many found them, so some investors have left,' said Gregg Gilbert, Principal, head of Iberia at Benson Elliot Capital Management. ‘This makes the market more interesting for those like us who are staying, as sellers are more willing to return your calls.’
Improving economic fundamentals are supporting the recovery of the market. ‘This year Spain is on course to be the fastest growing economy in Europe with a 2.8% GDP increase, consumer sentiment is strong, credit conditions are improving, so there is a lot of interest,’ said Alexandre Fernandes, head of Asset Management at Sonae Sierra.
The biggest problem, Fernandes said, is the shortage of good quality assets: ‘Even if the economic outlook is good, transaction volumes may decrease this year simply because of lack of assets. But this opens up scope for development.’ Given the shortage of prime assets, there are opportunities for development and regeneration in different sectors, from shopping centres to hotels to offices.
An obstacle, though, is a new uncertainty for investors due to recent political upheavals in Spain, Cladera said: 'Populist parties like Podemos have got into power and the local authorities are not always so friendly. Wanda, a big Chinese investor, bought a very large building in the centre of Madrid and it is still negotiating with the city authorities. If you need a change of use for a building in the capital, you could be stuck for years waiting, so your investment is at risk.'
This is a very worrying trend and investors are already talking about local government risk, she said: ‘Some investors have already given up. There are no clear rules and decisions are taken on a one-by-one basis. It is not just Madrid, either: in Barcelona we have seen hotel developments halted because the authorities decided there were too many tourists already. Cities are only successful because of their ability to regenerate.’
The lack of certainty after the elections may have put off some investors but it has opened up opportunities for others. 'Spain is not an empty playing field, by any means, but now there is less competitions in all sectors, including value add, so opportunities open up,' Gilbert said. 'Another positive is that the exuberance of the previous cycle has not come back. There is no aggressive financing of projects and a lot more caution. It is a much healthier market.'
