The good news about Spain is that it is not booming: instead the market is seeing sustained and sustainable growth that is set to continue for years with no risk of overheating, PropertyEU's Outlook 2017 briefing for Southern Europe has heard.
Improving fundamentals, new-found political stability, strong demand and positive prospects are attracting a broad range of investors to the country, experts agreed at the briefing, which was held at the Madrid offices of law firm Gómez-Acebo & Pombo Abogados on 14 December.
'We believe there is rental and capital growth for the next three or four years at least across all property sectors in Spain,' said Humphrey White, partner and managing director at Knight Frank Spain. 'We are not back to the boom years but that is healthy, because this time the growth is sustainable and supported by fundamentals, such as GDP growth of 2.5-3%, which is three times the EU average.'
Spain's success can be measured against the performance of the rest of Europe. After 2015's record investment and transaction levels, this year has seen a shift, with a marked reduction in capital flows coming into the Continent. Flows from the US are down 43%, investments from Asia have fallen by 21% and Middle Eastern money has shrunk by 87%. Against this backdrop, said White, '2016 Spanish real estate investment volumes are up 9% on last year, which was a record year, so this is extremely encouraging'.
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Safe bet
The major players are choosing to invest much less in Europe, but Spain is a different story. 'We have seen an increase in interest from sovereign wealth funds, that have difficulty finding large assets, we have seen transactions from Middle Eastern investors, including small ones, and we have seen a significant increase in flows from the US, not just direct transactions but equity too,' said White.
While the foreign investors that went back to Spain in 2014 were opportunistic, value-add investors looking for discounted portfolios, now there is a much broader investor base which includes core, core-plus, value-add, sovereign wealth funds and high net worth individuals.
'The investor base in Spain is now wider and healthier than in the rest of Europe,' said White. 'Spain has gone from being one of the most uncertain countries in Europe to being probably the most stable bet. We are looking at 5% rental increases across the board, which we think are more sustainable than the 10-15% increases you see in Dublin or Vienna. This means healthy, sustainable growth for the next three or four years.'
A growing economy, strong property market and stable government also mean yield compression and capital growth as investors perceive stronger fundamentals. 'We see a very active market in all different sectors and niches, because sentiment is very good,' said Alfonso Fernández-Puebla, partner at Gómez-Acebo & Pombo. 'Next year the market will be more robust, maybe we will not see huge transactions but many mid-market deals. The positive trend is set to continue.'
