Retail assets remain attractive in muted Spanish market: Savills

Spain can expect to see similar muted levels of retail investment in 2012 compared to the 2011 level of EUR 520 mln as the sector continues to see stalled sales, turnover rent performance and continued rental discounts, according to a report by property adviser Savills.

In some cases these discounts have been converted into permanent rental reductions according to the international real estate advisor. Yields currently stand at 6.5% for prime shopping centres and 7% for prime retail parks and will remain steady across the sector given the risk premium required by investors to account for Spain's macroeconomic situation.

However, Danny Kinnoch, international investment director at Savills Spain, said: 'Consistent yield contraction and rental deductions since 2008 mean that 2012 should present attractive opportunities particularly for investors not dependent upon bank financing. There is scope for strong returns assuming market recovery over the medium term, which will keep international players acquisitive, and the ‘parallel’ market involving debt sales will provide alternative buys for opportunistic investors.'

The report indicates that large disposals by retail giant Eroski are coming to an end. However, Savills suggests there may be some additional supermarket sales as well as the sale of hypermarkets located in shopping centres. Parallel to this market deals involving share acquisitions, full transfer of business or sale of debt that has been associated with real estate property is expected to continue. In 2011 examples of this include Perella’s acquisition of RBS mortgages, mostly linked to retail product, and the acquisition by Sonae Sierra of the minority equity of Plaza Mayor Shopping Centre in Malaga.

In terms of rents, prime centres continue to have high occupancy rates and rents remain stable, around EUR 90 m2/month for average size units of approximately 150 m² for new leases.