RESIDENTIAL BRIEFING: Spanish recovery is more than a flash in the pan

The recovery of the Spanish real estate market is extending to residential, experts have told a PropertyEU briefing on pan-European residential investment.

'Spain is more than the flavour of the month, as demonstrated by the boom of activity after years of lull,' said Javier Kindelan, president of valuation and advisory services at CBRE.

Kindelan was speaking at the pan-European residential Investment Briefing hosted at the London office of M&G this week.

'Last year investments were even higher than in 2007, the year before the crisis, but the really important development is that the economy’s engine has started again and credibility is slowly but surely being restored. The fundamentals are strong and this is driving the change, and bringing in international investors who, with prices still low, find they are actually getting the returns they expect.'

The Spanish residential market has been complicated to enter for institutional investors as owner-occupied stock represents 85% of the total, but recently regional governments and distressed banks have been selling stock, Kindelan said. 'The modus operandi of investors has changed, groups like Cerberus and Apollo have bought servicing platforms from Spanish banks, which is a good strategy as it helps with local management of the assets. In Spain, private investors are buying on the coast but institutional investors tend to buy in the cities like Madrid or Barcelona, which are a magnet for people looking for employment and a place to rent.'

Even deflation, which is a cause for some concern in Europe, has a silver lining in Spain, Kindelan said. 'It is driving competitiveness and increasing exports. We have not seen any destruction of value so far.'

CORESTATE
Proof of the attractiveness of the Spanish market is the renewed interest of purely opportunistic investors. One example is Swiss private equity manager Corestate Capital, which until now had focused mainly on Germany but now has entered the Spanish market via a joint venture with a local developer. Together with this partner, which is part of the Villar Mir group, Corestate is now targeting the high-end residential sector and the tourist sector in places like Marbella and Majorca.

'Our goal is to generate returns of 15% to 18%, which have been increasingly difficult to get in the German residential market,' said Sascha Wilhelm, Corestate's chief operating officer. 'That is why we have stepped out of Germany, where prices are high, and have taken the decision to enter the Spanish market, where prices are still low and the situation is improving. We have found a good local partner because we strongly believe that residential can be a successful investment only if you have the local knowledge and people on the ground literally checking the lease contracts.'

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