«The end of quality stock will cause many spaces to be renovated and new assets to be developed»
In 2015 the positive trend of the Spanish economy had a significant impact on the Spanish Real Estate sector, regaining the prominent role it had lost in recent years. However, this recovery was noted most in Madrid and Barcelona and, therefore, these were the markets that were most discussed. But what happened with other geographical areas? Did they experience such a significant improvement? Will they have more weight once the clearer opportunities in the two large cities are exhausted?
The year of the development
In order to discuss this and other matters, we have asked those responsible at CBRE for the markets of Bilbao, Palma de Mallorca, Zaragoza, the Canary Islands, Valencia and Andalusia to participate in a round table discussion to examine the key aspects of the sector in their regions for 2016. CBRE is the only Real Estate consulting firm with a network of offices in the main cities in Spain and that has not only maintained these offices in the last few years but also opened two new ones in 2015: the Bilbao office, to cover the entire Basque country, and the Seville office, focused especially on the logistics and industrial sector in Andalusia. This translates into more accurate knowledge and greater coverage of local markets, something that became evident during the round table.
In general, everyone agreed that this will be the year of development, with land playing a leading role. In the last few months we have begun to see the end of quality stock and, therefore, many already existing spaces will begin to be renovated and new assets will be developed. In the words of Íñigo Molina, Director of the Office in Marbella, “in 2015 we already saw land transactions on the Costa del Sol and this year these transactions form part of the plans of several investors in view of potential foreign demand for residential assets”. Along the same lines, Tonia Vera, Director of CBRE at Mallorca, announced that “2015 saw an increase in foreign investors’ interest in land in specific areas of Ibiza and Mallorca, as well as the historic district of Palma, areas with seaside views and the municipalities of Calviá and Andratx”. Something similar took place in the Canary Islands, a market where, due to its nature, it is difficult to develop land. However, César González Zarza, a representative of CBRE in the Canary Islands, was optimistic and considers that “2016 will be the year in which the various players involved will assess their options to facilitate the development of land in the Canary Islands”.
«This will be the year of development, with land playing a leading role»
It varies by type of asset depending on the region. In this regard, there will be an upturn in the logistics and industrial market in Aragon, Andalusia and the Basque country. Miguel Ángel Gómez-Rando, head of the office in the capital of Aragon, asserts that “large multinational companies are expanding and there is new investor appetite for logistics properties, especially on the part of international funds”. Juanjo López del Corral, Director of CBRE Bilbao, noted the beginning of speculative logistics construction in the area of logistics and industry, something that will also take place in the market in Valencia with several “turnkey” development projects pending. Along these same lines, Jesús Anaya, head of the CBRE office in Seville, stated that “With current rent prices, even if the price of the land was zero you couldn’t develop the land. The last industrial Real Estate development carried out in Seville took place seven years ago. But now there are operators that are demanding quality assets that need to be built”.
«There will be an upturn in the logistics and industrial market in Aragon, Andalusia and the Basque country»
Coastal areas are of course experiencing a boom in the hotel sector, driven by the excellent results of the tourism industry. This is also the case with second homes. “Foreign demand is becoming the key in the segment” noted José Ángel Sospedra, Director of the CBRE office in Valencia. He pointed out that Alicante will play a leading role in 2016 as a result of transactions for second homes carried out mostly by Europeans.
«Coastal areas are experiencing a boom in the hotel sector, driven by the excellent results of the tourism industry. This is also the case with second homes»
Occupancy prospects for offices vary depending on the different regions: “The occupancy rate in the Basque country is very high in prime Real Estate areas of capital cities and average occupancy in the business centres of Bilbao is around 88%”, stated López del Corral. However, according to Molina, “the office sector in Seville is progressing more slowly than the rest as a result of excess supply, which will increase even more with the opening of the Pelli Tower”. This is not the case with High Street Retail, where desirable areas in all regions are too limited, which gives rise to product shortages, very high prices and a drop in return. The yield compression, which can be clearly observed in prime Real Estate areas of Madrid and Barcelona, is also being noted in regional markets along with prospects for improvement in occupancy.
«Occupancy prospects for offices vary depending on the different regions»
Increase in new areas
In short, the participants in the round table discussion agree that the comparison that Spain is Madrid and Barcelona will be shattered and the Spanish market will include all regions, in part due to the depletion of development opportunities in the two largest cities and in part because of improvements to macroeconomic data that affect the Real Estate sector in each region.
«The yield compression is also being noted in regional markets along with prospects for improvement in occupancy»
«With regard to High Street Retail, the desirable areas in all regions are too limited, which gives rise to product shortages, very high prices and a drop in return»
Director CBRE Balearic Islands
IN 2015 WE ALREADY SAW LAND TRANSACTIONSON THE COSTADEL SOL ANDTHIS YEAR THESE TRANSACTIONS FORM PART OF THE PLANS OF SEVERAL INVESTORS
Director CBRE Marbella
2015 SAW AN INCREASE IN FOREIGN INVESTORS’ INTEREST IN LAND IN SPECIFIC AREAS OF IBIZA AND MALLORCA
César González Zarza
2016 WILL BE THE YEAR IN WHICH THE VARIOUS PLAYERS INVOLVED WILL ASSESS THEIR OPTIONSTO FACILITATE THE DEVELOPMENT OF LAND IN THE CANARY ISLANDS
Juanjo López del Corral
Director CBRE Bilbao
THE OCCUPANCY RATE IN THE BASQUE COUNTRY IS VERY HIGH IN PRIME REAL ESTATE AREAS OF CAPITAL CITIESAND AVERAGE OCCUPANCY IN THE BUSINESS CENTRES OF BILBAO IS AROUND 88%
Head of CBRE Zaragoza
LARGE MULTINATIONAL COMPANIES ARE EXPANDING AND THERE IS NEW INVESTOR APPETITE FOR LOGISTICS PROPERTIES
Representative CBRE Seville
BUT NOW THERE ARE OPERATORS THAT ARE DEMANDING QUALITY ASSETS THAT NEED TO BE BUILT
Miguel Ángel Sospedra
Director CBRE Valencia
IN 2016 THE REAL ESTATE MARKET IN VALENCIA WILL CONTINUE THE UPWARD TREND THAT BEGAN IN 2014
CBRE Regional Network Manager Spain and Morocco
2016 WILL BETHE YEAR OF DEVELOPMENT, WITH LAND PLAYING A LEADING ROLE
Key EY ASPECTS FOR 2016 IN…
– Investors are purchasing land, beginning developments and planning projects for the Costa del Sol stock.
– Investors are mainly foreign, although the last year was marked by the arrival of various Spanish developers in association with large funds.
– Local family offices are showing more interest in High Street products, retail, offices or certain small warehouses with a good contract.
– Buyers are arriving that are interested in logistics warehouse packages, driven by the drop in return in Madrid and Barcelona.
– There is strong demand for High Street assets in both Seville and Marbella.
– In 2016 we will see a boom in alternative assets that provide greater return and are coming into play: student halls of residence, homes for the elderly, hospitals, etc.
– The investment momentum of 2015 will continue into 2016 and 2017.
– In 2015 there was a clear recovery in the office sector, which absorbed a significant portion of the stock, and even greater recovery is expected in 2016.
– Two directions: new contracts in prime Real Estate areas in the city which, after the price adjustments experienced in recent years, has once again become competitive with regard to less prime areas.
– The beginning of “turnkey” construction in the area of logistics or industry.
– Compression of return in retail, logistics, offices and mixed office-retail buildings in prime Real Estate areas as a result of rapid price increases.
– The return of “turnkey” transactions in Zaragoza, taking advantage of the situation and the considerable supply in relation to other areas, such as Madrid, Barcelona or the Basque country, where it is more difficult to find plots and other assets.
– Multinational companies are expanding and there is new investor appetite for logistics properties, especially on the part of international funds.
– There is a shortage of assets in modules of 4,000 or 5,000 metres.
– The High Street area is fairly narrow in Zaragoza and is moving towards highly central streets near the main consumer hubs.
– Hotel chains will continue to make investments in order to improve their hotels.
– High Street retail will continue to be the most attractive aspect of the Real Estate sector in the Balearic Islands from an investment point of view.
– Investor demand has always been characterised by being very local, but there is an increasing number of Spanish and European family offices interested in the islands.
– 2016 is going to be the year of land and building renovation in the Balearic Islands. The most desirable areas of Mallorca are specific locations in Palma, such as the historic district, and coastal areas in the municipalities of Calviá and Andratx.
– A high percentage of these buyers are foreign. Ibiza is also very attractive for both Spanish and international investors.
– The office sector will continue its modest recovery as a result of the increase in occupier demand.
– In 2016 the Real Estate market in Valencia will continue the upward trend that began in 2014. This is a key moment for investors to position themselves since prices have reached all-time lows and we are beginning to see increases in certain areas.
– Foreign demand is key in the market for second homes on the coast and Alicante is becoming the target of a large number of transactions by Europeans, especially the British.
– There is interest from investors, funds and developers in positioning themselves in transactions involving land to be subsequently developed both in the city of Valencia and the Costa Blanca.
– We will also see more land transactions with “turnkey” projects in the industrial and logistics sector.
– Office spaces will continue to be absorbed in the city of Valencia, and high-quality properties will stand out above the rest.
– There is significant retail activity in the city of Valencia with transactions with very low yields, which in some cases are comparable to Madrid or Barcelona.
– Land in the Canary Islands is difficult to develop, but in 2016 various players will begin to establish a basis, facilitate its development and face less administrative obstacles.
– The funds of countries bringing tourists to the Canary Islands have begun to realise the investments that can be made and the return to be obtained.
– The positive data on the tourism industry indicates that hotel investment will continue through renovation and the development of new establishments.
– There is no longer residential housing stock and prices are under certain pressure since there are no new products.
«The comparison that Spain is Madrid and Barcelona will be shattered and the Spanish market will include all regions, in part due to the depletion of development opportunities in Madrid and Barcelona and in part because of improvements to macroeconomic data that affect the Real Estate sector in each region»