Spain is experiencing growth and attracting investment in all asset classes, from traditional to niche sectors, experts agreed at PropertyEU’s Outlook 2017: Europe and Southern Europe briefing, which was held in Madrid in December.
One common thread that links all the asset classes is the need to upgrade, refurbish, modernise and reposition buildings to make them attractive to tenants and suitable to changing demands. After years of inactivity due to the crisis, the problem in Spain is not so much the availability of assets but their quality and suitability, experts said.
‘The quality of office space is low in Spain compared to the rest of Europe, so we are investing heavily to improve it,’ said David Brush, chief investment officer at Spain’s largest listed real estate company Merlin Properties. ‘We are taking the bet that this will make a difference, attract foreign companies to Spain and drive rents up.’
Offices in Madrid and Barcelona are still below peak levels, and an increase in rent and capital value is expected, due to pent-up demand and the ‘acute lack of grade A supply’, said Humphrey White, partner and managing director at Knight Frank in Spain. ‘The market is not moving as quickly as we expected, but it is back to net positive. The annual take-up of offices in Madrid is back to 500,000 m2, which is a healthy and sustainable long-term average compared to the all-time high of 900,000 m2 in 2007 and a low of 275,000 m2 in 2013’.
Retail revs up
Prospects are positive for the retail sector too, as a stronger economy boosts consumer confidence. Footfall and sales have increased in urban centres as well as in the large shopping centres. ‘The large, dominant shopping centres that offer a positive experience will be more successful and more resilient to the e-commerce onslaught,’ said Miguel Torres, head of Iberia at Allianz Real Estate. ‘We believe there is money to be made in retail in Spain without a further compression in yields,’ said White.
Core investors are still looking for offices and retail, but they will slowly but surely move into logistics, said White: ‘Next year Spain will be back on the logistics map.’
Much of the existing stock is obsolete, so build-to-suit is a necessity. ‘We are building more new product because standards and tenant demands have changed, so you have to build product that fits the bill,’ said Brush. ‘We see that trend continuing in 2017.’
The need to upgrade existing stock and develop new product applies to the student housing sector as well, said Archer Bishop, senior vice-president and investment manager at Round Hill Capital. ‘Demand is high and growing but the product is old, and young people now have high expectations and want high-tech residential. Strong structural imbalances make for great opportunities.’
Round Hill Capital is also betting on the positive effects of tourism. ‘Spain experienced 10-15% tourism growth this year and it will be the same next year, so it is a booming sector,’ said Bishop. ‘Some of the tourists will want to stay, so we think the second homes market will do well too. This for us really broadens the scope of what you can invest in 2017 in Spain.’
