With an aggregate volume of around €2bn between Q1 – Q3 2013, the Spanish real estate investment volume is increasing, according to new research BNP Paribas Real Estate, as revealed at its Investing in Spain event held today in London.
The most active sector is retail, driven by large portfolio acquisitions, followed closely by the office sector and then the hotel market. Transactions have mainly focused on assets in Madrid and Barcelona, with the average value varying between €20m and €40m. The sales of housing portfolios have also finally come back to life.
Luis Martín Guirado, president of BNP Paribas Real Estate Spain, said: “The opportunities offered by Spain as a country go far beyond the success which it has justifiably achieved in fields such as tourism, sports and cuisine. So why do we believe that this year will be particularly favourable for real estate investment in Spain? We are seeing capital values for all types of real estate assets and the price of land at the lowest levels seen in recent years, representing a unique opportunity. The primary markets such as Madrid, Barcelona and Valencia are enjoying moderate, stable rents and further growth is expected. In addition, as a result of future yield compression, returns for investors committed to Spain are anticipated in all sub-sectors.”
BNP Paribas Real Estate’s international investment director, Andrew Cruickshank, commented: “The expectations for recovery during 2014 is fuelling a perception that available assets with prices below market levels may offer high internal rates of return. We are now seeing large international funds setting themselves up in Spain on the lookout for real estate opportunities originating from public institutions, banks repossessions and the Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria (SAREB).”
Unlike previous years, where real estate investment rested in the hands of private national investors, American, French, British and German funds are now prominent in the Spanish investment market. Latin American private equity and investment funds have also recently acquired Spanish assets.
This increased investment activity has not yet affected prime yields, in part due to the weakness in occupancy. Prime offices in Madrid offer initial yields of around 6.2%, compared to 6.4% in Barcelona. The prime yield in the retail segment amounts to 5.5% in both key cities. Although logistics investment transactions have so far remained frozen in 2013, the initial yield is around 8%. Despite the improved outlook for public sector debt and the economy in general, yield compression is not anticipated until the recovery of the occupational market becomes evident, forecast towards the second half of 2014.
“We expect the improving Spanish real estate investment climate to remain positive for the rest of this year and into 2014. Bank portfolios and the SAREB will continue to foster opportunistic strategies and the bottoming-out of capital values will open the door to value-added strategies. Nonetheless, access to credit for real estate investment will remain restricted for the foreseeable future and as a result, cash buyers will continue to represent the main players within the Spanish market,” added Cruickshank.