Spain's property values to stabilise in Q4, says Savills

Spanish commercial property prices are forecast to fall further in 2009 before stabilising around the end of the year, according to Max Gill, Savills' head of valuations in Madrid. Prime office and shopping centre properties have reported a 20-25% fall in value over the course of last year, with land plots seeing the sharpest drop of up to 40%, he added.

'We might have seen the worst of the fall, but there is still some yield shift left, the amount of which will be highly dependent on banks' attitude,' he said. It is estimated that yields for prime shopping centres have risen from 4.5% a year ago to around 6% at present, although the lack of transaction activity is making it harder for valuers to determine where the market currently stands.

According to Gill, real estate financiers in the country are now more open to negotiations with property owners struggling to meet their debt commitments. 'Banks are willing to go back to the owner of the property and look for solutions to avoid foreclosures,' he said.

The repossession by creditor banks of a 65% stake in leading Spanish developer and investor Metrovacesa earlier this year has played a strong role in banks' more flexible position with property owners. 'Banks have seen what happened with Metrovacesa and they are now more willing to cooperate, because they don’t want to become property owners,' Gill said.

Despite the change in banks' attitude, Gill expects more companies will breach loan to value covenants this year as a result of a sharp drop in the value of their real estate. 'We have already seen a couple of them, but there will be more of it,' he said.

Amid declining values, property companies are also asked by banks to value their assets more often. This is boosting activity across the broker's department team, Gill said. At end January, Savills announced it was expanding its valuation team in Madrid with the addition of Fernando Fernandez de Avila.