Spanish mall supply increases as foreign players dominate market: Savills

Up to EUR 1 bn worth of Spanish shopping centres are expected to come onto the market in the next few months after a slow start of the year, according to international real estate advisor Savills.

The increase of vendors during 2011 will be led by banks disinvesting, in addition to local developers and traditional investors. Gross yields for prime centres should remain at 6.5% on average, with retail parks at 7% and secondary product at 7.5%, Savills said.

Traditional funds, mainly internationals, will continue to dominate the field after Dutch, British and German funds accounted for 90% of transactions in 2010, the report said.

'It has been a relatively slow start to the year with EUR 165 mln transacted but we are confident that with the increasing supply of centres coming onto the market, combined with international appetite, we could see a higher sales volume achieved in 2011,' said Luis Espadas, head of capital markets at Savills Spain. 'The economy remains a concern but with a controlled development pipeline and attractive rents, occupancy rates are at a healthy 95% in new prime centres.'

Savills' research shows that prime new centres continue to lead occupancy rates. Las Arenas in Barcelona, Marineda City in La Coruna, Arambol in Palencia and Seville Este in Seville, have all opened with high occupancy levels, Seville Este and Arambol both achieved up to 100%. This small vacancy reflects a trend of recent arrivals or veterans re-entering the market and accessing top-end centres in prime areas due to a fall in rents over recent years.

In terms of rents, new contracts in prime centres remain stable at EUR 90 m2/month, discounts are still obtainable with rent reviews occurring every three to six months to monitor sales changes in relation to discounts. Despite expansion plans, closing of retail units remain a reality in the market with Brico House and Miro both closing stores. In the electronics sector, there has been a move towards control by a small number of companies and Media Markt is dominating.

At present, the development pipeline is put at 416,000 m² for 2011. 'This figure is likely to be adjusted by the end of the year as delays to developments are quite usual due to the difficulties in securing finance,' said Gema de la Fuente of Savills Research. Development levels are comparable to 1999 figures with little more than 335,000 m² (including extensions) opened in 2010, 35% less than 2009. 'This compares to over one million m² at the peak of the market in 2008,' De la Fuente added.

Retail warehouse parks continue to increase in importance, with stock exceeding 1.5 million m² across the country, accounting for 11% of the total.