Deloitte: Retail Assets Threaten Office Dominance

25 February 2016 – Expansión

Office buildings, which were the kings of the real estate investment market in 2015, may be knocked off their throne this year by the shopping centre and retail outlet segment.

Last year, investment in Spanish real estate assets increased by 37% in total, to amount to €11,700 million. 57% of those assets were located in Madrid and 45% (of the total) were office buildings.

However, according to a report prepared by Deloitte, negotiations are currently underway for the sale of real estate assets worth €6,000 million, and 58% of those assets are shopping centres and prime retail outlets.

According to Javier García-Mateo, Partner of the Financial Advisory team at Deloitte, “the real estate investment market is showing some very positive signs: there is currently around €8 billion of foreign capital seeking profitable properties in good locations, with potential for rent increases”.

The volume (of investment recorded) in 2015 is going to be hard to beat, primarily, because it was an exceptional year in terms of the size of the assets that were put up for sale. “The owners of large assets took advantage of the abundance of capital to put their properties up for sale, such as in the case of Torre Espacio. But it is not typical for so many properties of that size to be sold in the same year”, he said.

At the moment, the sales of numerous first-rate shopping centres and retail premises are being negotiated, “but none are on the same scale as the Plenilunio sopping centre, which was sold last year for €375 million; all of the assets have asking prices of less than €100 million”, confirmed García-Mateo.

Purchaser profile

With the return of more traditional funds to the Spanish real estate market over the last two years, the opportunistic investor has been losing influence and currently accounts for just 7% of purchases. Forecasts indicate that the majority of investments will be made in core and core+ assets in 2016. According to Deloitte’s report, buildings that need renovating and to find a tenant in order to generate added value are also included within that 7%.

The study also reveals a significant shift in the market for financing. According to Ana Granado, Senior Manager in the Financial Advisory team at Deloitte, “domestic banks have eased their financing conditions significantly, for both offices and shopping centres, as well as for logistics assets, regardless of whether they are located in prime areas or secondary regions”. Costs are lower; the level of indebtedness is higher; and the (repayment) terms are longer, say the sources at Deloitte.

Original story: Expansión (by Marisa Anglés)

Translation: Carmel Drake