Spanish property market heads European cycle

Spain shares many of the qualities that are currently attracting investors to the UK commercial real estate market, according to new research released by CB Richard Ellis. As a result, it is attracting an increasing share of the European property investment market.

Although in absolute terms the Spanish commercial real estate investment market has shrunk over the past 18 months, with investment activity totalling EUR 1.85 bn in H1 2009, the decline has been much less severe than that seen elsewhere in Europe. As a result, Spain’s share of the total European market has more than doubled, from around 3% of the total in 2005/06, to 7.5% in H1 2009. This growth in market share indicates that investors - particularly opportunity funds - are already spotting value in the Spanish market.

It is also significant that Spain saw some of Europe’s largest property deals in H1 2009, including two of the nine transactions of more than EUR 200 mln. This included the acquisition by Orion Capital of the Plenilunio shopping centre in Madrid for EUR 235 mln, one of a number of properties that CB Richard Ellis has been marketing on behalf of Banco Santander’s real estate fund, Banif.

An important driver of this investor interest in Spain is the relative speed with which the market has repriced, as well as the availability of good quality investment product at those prices. Since the peak of the market in mid-2007, prime yields in Spain have increased by between 200 and 225 basis points. This compares to a European average rise of 136 bps for the same period (according to the CB Richard Ellis All-Property EU27 Prime Yield Index).

Adolfo Ramirez-Escudero, Executive Managing Director CB Richard Ellis Spain, pointed out that there were seven serious bidders for the Plenilunio shopping centre. 'There is already serious competition for the best assets.'

A significant increase in activity was also recorded in July, he added. 'CBRE Spain completed four notable deals for Spanish clients totalling more than EUR 300 mln in July. Two of these were in Spain, with another two elsewhere in Europe sold to international buyers.'