Idealista: Non-Residential Assets Offer The Highest Returns

23 February 2016 – Expansión

Alternative Investments / Non-residential assets generate the highest returns, ranging from 4.4% in the case of garages to 7.3% in the case of commercial properties.

Commercial premises and offices offer even higher returns than housing, in general terms, although they are less affordable for the small-time real estate investor. Specifically, buying premises to let in Spain offers a gross return of 7.3%, i.e. four tenths higher than a year ago (6.9%), according to the latest rental yield report from Idealista. Garages recorded an increase and are now being rented out for 4.4% on average (eight tenths higher than the 3.6% recorded in 2014). Offices generate a gross annual yield of 6.6% (twelve months ago that figure amounted to 6.7%).

Commerical premises are the most profitable, although it is now difficult to obtain high yields in the prime areas of large cities. Córdoba is the capital with the most profitable retail assets (8.8%). It is followed by Las Palmas de Gran Canaria (8.3%), Girona (8%) and Zaragoza (8%). Barcelona and Madrid recorded returns of 7.7% and 7.6%, respectively, in this regard at 2015 year end.

Castellón has the least attractive premises for investors (with a yield of just 4.7%, albeit it far from negligible), followed by Huelva (5.4%), A Coruña and Salamanca (5.8% in both cases), according to the data from Spain’s largest real estate portal.

Offices in Zaragoza offer the juiciest return of all the regional capitals, with a gross yield of 6.9%. It is followed by Vitoria (6.6%), Santa Cruz de Tenerife (6.6%) and Sevilla (6.4%), according to the report. In Barcelona, the gross annual yield from purchasing a commercial property and renting it out amounts to 6%, compared with 5.8% in Madrid.

At the other end of the spectrum, we find the yields in Valencia (4.8%), Santander (4.9%), A Coruña and Oviedo (5% in both cases). “The office market is not as uniform as the markets for other products, which means that it is impossible to obtain statistical data for more than half of Spain’s regional capitals”, says Idealista.

In fact, the data varies by area for each city. For example, in the prime areas of Madrid and Barcelona, the return from investing in offices has stabilised, following a decrease. “We do not think that initial returns will decrease any further. Rather, they will remain stable, at around 4%, in the best areas over the next two years”, says Humphrey White, Partner and Director of the Commercial Department at the real estate consultancy Knight Frank. Later, after three, four or five years, this ratio may increase, as rents are reviewed to reflect (future) market prices, which may be higher than current prices (rental contracts specify that rents may not increase by more than CPI for five years).

“Yields stood at around 6% three years ago, but they have now stabilised at between 4%, as a minimum, and 5%”, adds White, who points out that “the market rebounded strongly in 2015”. Specifically, office leases were signed for a total surface area of 490,000 m2 in 2015, the highest figure recorded since the start of the crisis, in 2007, and that was despite the most optimistic forecasts predicting a year-end figure of around 420,000 m2, according to data from Knight Frank. (…)

Meanwhile, garages are the least profitable assets for investors in many regional capitals. The highest returns were recorded in Málaga (8.3%), followed by Santa Cruz de Tenerife (5.8%), Pamplona (5.1%) and Castellón (4.7%), according to data from Idealista. (…).

Original story: Expansión (by J. M. L.)

Translation: Carmel Drake