Spanish Spring

Andy Schofield

The good times are back and Spain’s investment agents are, once again, smiling after five years of inactivity. Andy Schofield, Director Of Research, discusses this further.

The good times are back and Spain’s investment agents are, once again, smiling after five years of inactivity. The taming of the Eurozone crisis and subsequent rebound in Spain’s economic activity has fuelled a surge in liquidity. Last year was the market’s best results for investment transactions since 2007, with the retail sector leading the way. According to Savills Research, mall transactions topped €2bn, the highest on record. Overall, retail investment came within shooting distance of the 2006 market peak as overseas investors, particularly from the US, returned in force, occupying all positions on the risk spectrum to buy into the recovery story.

The office sector, typically the preserve of domestic family offices and local developers, lagged retail volumes due to a shortage of product. Savills confirmed that transactions were nevertheless triple their annual tally in recent years. The office sector recovery is compelling: rents plummeted by 40% and have barely begun to recover. Even at yields of 5.0%, prime capital values are way below the EU average and have considerable scope for a rebound, as the economic recovery matures. Holders of CBD assets have refused to part company and this has forced investors to out-of-town locations, where the majority of deals took place last year. Income-producing assets are favoured, in contrast with a couple of years ago when investors widely targeted refurbishment opportunities, vacant buildings and change of use opportunities.

Is the stage set for the good times to continue throughout 2015 and beyond? There are no signs of concern from investment agents that Spain could get wrapped up in a re-run of a credit market speculation, should Greece file for a divorce with Mrs Merkel. To be fair, the bond and equity markets also seem relaxed. Not a hint of concern about the upcoming General Election, where Spain´s own anti-austerity and anti-corruption protest parties could conceivably hold the balance of political power. Spain took its medicine after the financial crisis and is reaping the gains of a strong, cyclical economic recovery. It would be a pity if these hard-won gains were challenged and credit market confidence is dented. Given that both of the main political parties have ruled out a coalition with Podemos, the main anti-austerity party, this risk is, on the surface, relatively low. Assuming all works out well, the real estate capital market should benefit from healthy levels of liquidity for some time, or at least until the ECB unwinds its QE programme.

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Andy Schofield

Andy Schofield

Director of Research

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