The financial year 2014 was the second-best year ever for commercial real estate investment in Spain, says the real estate arm of the financial services group BNP Paribas.
The total investment of 6.95 billion Euro last year was surpassed solely by the figure for 2007, at the top of the previous property boom.
Property investment in 2013 and 2014 grew by 110% and 85% respectively. “Acquisitions in the sector have reacted in parallel with the capital markets as a consequence of improved sentiment on the part of investors regarding our country” explains Francisco Manchón, the National Investment Director for BNP Paribas Real Estate in Spain.
“The dynamics of the financial markets, expectations for the recovery of public finances and the anticipated growth in occupancy and rents lie behind investors’ strategies”.
The spur to investment in 2014 was the effective start-up of the SOCIMIs (Spanish REITs). These investment instruments cornered around 3 billion Euro and two thirds of the volume was spent within a single financial year, i.e. last year.
Added to these were American and British investment funds and a number of private and family fortunes which were Spanish, Asian and Latin American in origin.
Although nominally domestic, the appetite of a number of international investors lies behind the money invested on the part of the SOCIMIs.
In 2015 BNP Paribas Real Estate expect investors to focus more on fundamentals than speculative opportunities, which could result in investment levels steadying out or falling back slightly.
In 2013 investors focused primarily on distressed assets such as repossessions, collateral on neglected debts, NPLs, etc., with strategies which were merely speculative, as often happens in phases prior to economic recovery.
As the Spanish economy showed signs of recovery, investors moved towards assets and portfolios in need of creative management in locations which were key, but not prime. “In 2015 we anticipate a new trend towards core plus”, explains Manchón. “Investors are seeking more consolidated assets at a higher price, in order to spend time on their management for periods exceeding even five years and rejecting the opportunity for short-term sale”.
Commercial Real Estate Types
Cornering two thirds of investment, the leading assets over the past year consisted of shopping centres and offices, each with similar shares.
These were followed by hotels, with a share which was more moderate (15%) but which passed the 1 billion Euro barrier.
2015 will witness new transactions in the office and logistics segments, as well as the commitment on the part of some investors to undertake new developments under a turnkey framework.
Acquisitions of shopping centres will be more scarce than in 2014 – a year which proved exceptional in terms of transactions for these types of assets.
Capital values will grow in line with the more positive performance of demand and the lower vacancy rates expected for offices, retail and logistics. “This situation will lead to lower initial yields, but better long-term yields for real estate projects”, he concludes.
Implications For Residential Property Market
BNP Paribas Real Estate make no reference to Spain’s residential property market in their report, but as all property markets are connected on some level, investor enthusiasm for commercial property is ultimately good news for the residential sector as well.