Investment volumes in Spain's real estate markets are expected to hit €8.9 bn in 2017, in the country's best performing year since the global financial crisis (GFC) and a 5% rise year-on-year, according to Savills.
Foreign investors have been responsible for 62% of all commercial real estate investment activity in the country to date this year.
Savills research shows that the positive sentiment has also spread to both Italy and Portugal, and is now extending to Greece and Cyprus.
'Positive economic growth, falling unemployment rates and renewed consumer confidence are luring investors back to Southern Europe. There are marked differences between the region’s countries, but they do share some key traits,' said Alice Marwick, associate, Savills European Research.
After years of weak activity, investment volumes across southern Europe have increased by 277% in 2017, compared to the low of €5.2 bn registered in 2012. According to Savills, the total volume is up 8% yoy and southern European markets now account for 10% of total EU investment volumes, compared to 5% in 2012.
'Importantly, all of them depend on cross-border capital flows; so far this year foreign investors have accounted for 70% of all activity in southern European countries, compared to the EU average, where cross border investors typically account for 52% of the total volume,' Marwick added.
Savills has recorded that European and US funds are the dominant cross-border players accounting for 37% and 38% respectively of overseas investment. In Spain, the majority of cross-border capital has been invested into retail assets (48%).
In Portugal, retail has been attracting foreign investors’ interest since 2012, although offices have overtaken retail this year with €372 mln invested compared to €352 mln of retail investment.
Tourism boom
'Additionally, the factor that links the countries in the southern European region is their booming tourist industries, with Barcelona, Milan, Rome and Madrid amongst the top ten European destinations for overnight international visitors,' added Marwick.
According to Savills, Spain is the third-largest tourist destination in the world, recording an annual increase of 10.3%, but Portugal is also seeing growth as Chinese visitors alone have gone up 19% in the last year.
'As Spain’s recovery has superseded that of the rest of the region and as the supply of distressed assets becomes limited, investment opportunities are becoming increasingly prevalent in Portugal, Italy and Greece,' said Marwick.
'Furthermore, while investment volumes keep growing in Spain, both office and retail yields are at record lows (3.25% and 4.25% respectively) and continue to compress due to lack of product and high demand. In the core market there is now little opportunity for proper returns, although there is some scope for rental growth.'
