Testa Suspends the Rental of its Homes Following Approval of New Rental Act

24 April 2019 – El Boletín

Blackstone, the fund that has invested the most in the Spanish real estate sector over the last five years, has reportedly suspended the rental of hundreds of homes managed by its Socimi Testa following the approval of the new Rental Act by Pedro Sánchez’s government on 1 March.

The new decree lengthens rental contracts, giving tenants the right to remain in properties for seven years in those cases in which the landlord is a company, and prohibits rent increases above CPI.

Testa has more than 11,000 properties under management and Blackstone has owned a majority stake in the Socimi since last year after acquiring shares from banks and other groups.

According to professionals from intermediary companies that work for Blackstone, a decision was taken to suspend Testa’s activity following the approval of the decree, in light of the uncertainty generated. Activity is expected to resume in May, following the general election.

Blackstone already warned a couple of months ago that the new Rental Act is discriminatory and would only serve to increase rental prices.

Original story: El Boletín

Translation/Summary: Carmel Drake

The Market for Land Makes a Come Back in Valencia

25 March 2019 – El Mundo

The stars are aligning in the real estate sector in Valencia. Investors and developers alike are keen to get there hands on the raw material there – land. Activity in the segment is still well below its peak of the boom but the recovery is now well underway.

According to the latest figures from the Ministry of Development, during 2018, the number of land sale operations increased, as did the total surface area sold and the total amount of the transactions. The market for land is still on the rise, even though the average prices being paid for plots has decreased.

In this way, 1,884 land sales were completed in the Community of Valencia during 2018, up by 11.1% YoY, when 1,687 sales were recorded. That is the highest figure since just before real estate bubble burst – 3,199 operations were recorded across the three provinces in 2007.

In total, 3.9 million m2 of land was sold last year, compared with 3.35 million m2 in 2017. Not since 2007 has more land been transacted in a single year – 5.4 million m2 of land was sold in 2007.

In total, investment in urban land amounted to €373.5 million last year, compared to €345.7 million the previous year. That is the highest figure since 2009 when €512 million was invested.

Moreover, the outlook for the year ahead is positive. More and larger land purchases are forecast, although the stock of plots with the most potential is starting to run out.

In terms of prices, the average price per square metre fell by 18% in Q4 2018 in YoY terms to €149.6/m2. Nevertheless, the average price rose by 21.7% to €217.9/m2 in those municipalities with more than 50,000 inhabitants in Alicante. That price compares very favourably with the average for municipalities with more than 50,000 inhabitants across the rest of Spain, where prices increased by 6.3% to €292/m2.

Original story: El Mundo (by F. D. G.)

Translation/Summary: Carmel Drake

Construction Costs Soar & Feed the ‘Boom’ in House Prices

9 September 2018 – El Confidencial

“A year and a half ago, I asked for a quote from a small construction company for a building project in Leganés. I drafted the plans, obtained the permit from the Town Hall and when I spoke to the construction company again about starting the work, they quoted me 35% more than we had originally agreed. It was crazy. And something similar has just happened on another project in Móstoles. I signed a building contract with another construction company two months ago, the work starts next week, but they can’t stick to the price we agreed because they can’t manage to hire workers for that price”.

The speaker is a property developer from Madrid, who prefers to remain anonymous so as to not generate hostility amongst construction companies. Over the last few months, he has suffered as a result of the significant rise in construction costs. There are severe labour shortages, which are causing prices to rise, given that the cost of construction materials, although increasing slightly, has remained much more stable.

The increase of 35% is not generalised across Spain, but it is starting to become quite frequent in cities such as Madrid, Barcelona and Málaga where real estate activity has recovered more strongly than in other parts of the country, according to the experts consulted.

To give us an idea, according to a study prepared at the beginning of the year by ACR Grupo, residential construction costs have risen by 17.5% in the last 24 months, and by 12% in the last year alone. After 2007, and coinciding with the crisis, those costs decreased by 20% and remained almost flat for more than five years until two years ago, when the long lethargy was finally broken.

This higher cost of labour has a direct impact on house prices. According to the experts consulted, a 40% increase in construction costs results in a 20% rise in house prices. And, if the price of land represents around 35% of the total cost of the construction, then construction costs now account for around 50%. “Why do you think that prices are rising so quickly in Madrid and Barcelona? The price of land is soaring and now this unexpected enemy has arrived on the scene”, said the same developer.

In the Spanish capital, prices are out of control in certain areas, with price rises of up to 20%. “…”. “Within a given development, a home that used to cost €400,000 is now being sold for almost €500,000. The increases are not only due to the fact that there is a lot of demand and limited supply, but also because if the properties aren’t sold at those prices, then the project is not profitable. Some of the listed property developers have already warned that they will not be capable of building as many homes as they had planned. We will see in a few months time whether they are going to be able to fulfil their sales forecasts”, add sources from a construction company.

Although property developers have recognised this problem publicly for months, they are also convinced that it has gotten worse over the last nine months (…).

Destruction of the production fabric

The lack of skilled labour is evident. Plumbers, framers, electricians, bricklayers, etc…And like in any market, scarcity causes increases. Many of those who used to earn their living building homes at the height of the boom have changed jobs or left the country and have no intention of returning.

The figures speak for themselves. In 2008, the year the bubble burst, 600,000 new homes were completed in Spain. Now, that number barely reaches 50,000 units. Moreover, that decrease in activity has led to the disappearance of more than 12,600 companies linked to the sector since 2012, around 6,800 construction companies and 5,700 real estate firms, according to data from PwC.

That destruction of business fabric has resulted in an enormous number of unemployed people. Whilst a decade ago, the number of wage earners linked to the construction sector amount to 2 million people, in 2017 the number barely exceeded 800,000. In other words, almost 60% of the workers have disappeared (…).

“The main problem is that people who worked in the sector before and who have now found work now elsewhere do not want to return because of the fear of another crisis…”.

The problem goes far beyond the increase in prices that the property developers end up passing onto end buyers. The severe labour shortage, together with the lack of financing, puts in danger the sector’s estimates in terms of their forecasts for the construction of homes necessary for a healthy real estate market. And no solution for that problem is likely to be found in the short term (…).

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake

Christie & Co: There Are Still Plenty of Opportunities for Hoteliers in Spain

22 January 2018 – Press Release

Businesses can look forward to a period of increasing confidence as we head into 2018, according to the latest report by Christie & Co, specialist hotel property adviser in Spain and business property adviser in the United Kingdom. 

In its Business Outlook 2018 report, Christie & Co reviews the most important investment figures in Spain, Europe and the UK, as well as the main hotel indicators for the market in 2017.

According to the data available to Christie & Co, Spanish hoteliers must strengthen their position in the face of the recovery of competing destinations, such as Turkey, Egypt and Greece, which will exert greater pressure on prices and may divert some of the outbound tourism from northern Europe towards other sun and beach destinations.

The report emphasises the increase in investment registered in 2017 in Spain, mostly carried out by investors (51.2%), whose seven largest operations amounted to more than the entire country’s investment figure in 2016. In addition, the proportion of foreign investment represented 56% of total investment and mostly proceeded from the United States, the United Kingdom and France.

Regarding Portugal, the report highlights that only seven deals were known to the market in 2017, involving hotel assets sold individually to hotel operators (MGM Muthu and Hoti Hotels) and investors (Internos). The potential of Portugal in terms of hotel investment is growing, with many investors interested in Porto, Lisbon and the Algarve, mainly due to a remarkable market recovery, which, in the case of Lisbon recorded an increase in occupancy rates and RevPar of 2.8% and 14%, respsectively, during the 9 months to September 2017, with respect to the same period in 2016 (…)

Regarding the UK, where the advisor covers a wider range of sectors, Christie & Co identifies those which benefitted from activity fuelled, in part, by the availability of finance and a surge of investors, many from outside the UK, looking for good opportunities and strong returns.

The continued uncertainty surrounding Brexit has made its impact across all sectors, but the UK has also welcomed a spike in tourism and a surge of foreign capital into the UK market. Asian investors particularly view the UK as an attractive investment opportunity thanks to the country’s stability and relatively low value of the Pound (…).

As a conclusion to the report, Christie & Co believes that the economy is recovering and there are still plenty of growth opportunities, something that they are also embracing, bolstering their teams both in the UK and Europe, to capitalise their expertise to attract and support both new and well-established clients who need help navigating the market, and who want to ensure a high-performing business.

Original story: Press Release

Edited by: Carmel Drake

TM Buys 165,000 m2 of Land in Benidorm

8 January 2018 – Eje Prime

TM Grupo Inmobiliario is starting 2018 with the largest purchase in its history. The property developer specialising in the construction and sale of large residential developments on the Mediterranean Coast has acquired 165,000 m2 of land in Benidorm. This purchase represents the company’s largest investment in land since it was created in 1969.

The acquired land is located one road back from the beach Playa Poniente in Benidorm and most of it will be used to build homes. The first properties are expected to go up for sale in the summer of 2019, which means that the first phase of constructed homes would be handed over in the middle of 2020.

This operation, the fourth undertaken by TM in the Alicante municipality in the last three years, not only completes the sales forecast per the company’s strategic plan for 2015-2019, it also assures its activity in the area for the next 10 years. The project will involve the development of around 1,200 homes in residential developments targeting both the domestic and European market, according to explanations provided by the group in a statement.

During this period, the company expects to invest around €260 million, over several phases of execution lasting two years each. Since 2015, TM Grupo Inmobiliario has successfully carried out the development, execution and sale of other developments in Benidorm, namely: Ocean Drive, Sunset Drive and ‘La Ermita del Mediterráneo’ in El Tosal.

Original story: Eje Prime

Translation: Carmel Drake

Sareb Sells €150M NPL Portfolio to Oaktree

30 December 2017 – Expansión

The bad bank has closed the sale of several non-performing loan portfolios during the last few days of the year. A week ago, it announced the sale of a package of loans secured by properties to Deutsche Bank, whose nominal value amounted to €375 million. That was its largest sale of the year.

And yesterday, Sareb reported that it has reached an agreement to sell the so-called Project Tambo to the US fund Oaktree for a nominal value of €150 million. The debt is secured by residential assets and land located in the Balearic Islands, the Canary Islands, Cataluña, the Community of Madrid, País Vasco and the Community of Valencia.

Sareb has been advised by CBRE and Ashurst in this process, whilst Oaktree has awarded its mandate to JLL and Herbert Smith Freehills.

The bad bank, where the toxic assets of the rescued savings banks were parked, closed 2017 with a lower volume of transactions of this kind compared to 2016. Nevertheless, it has launched a trial to test an online sales channel, which may allow it to intensify its activity over the next few months.

Having said that, 80% of the revenues that Sareb obtains do not proceed from the institutional market, but rather from the direct sale of properties in the retail market.

In five years, Sareb has divested 27% of the 200,000 assets that it received initially and has repaid debt amounting to almost €13 billion. It has ten years left to liquidate the rest of its balance sheet. The entity’s cumulative losses amount to €781 million.

Original story: Expansión (by R. L.)

Translation: Carmel Drake

Employment In The Real Estate Sector Rose By 6.4% In October

3 November 2017 – Eje Prime

The real estate sector is continuing its role as a driver of the growth of employment in Spain. According to data from the Social Security office, in October, real estate activity registered a total of 130,850 affiliated workers, 63 more than in September. That figure represents a YoY increase of 6.4%, with 7,921 more professionals now active in the sector.

Including October, real estate activity has now recorded four consecutive months above the threshold of 130,000 jobs. This hopeful figure for growth contrasts with the just over 118,000 workers that were registered in the segment less than two years ago, in January 2016. Last year, during one month, March, the figure actually fell below that threshold, to an annual minimum of 117,986.

Nevertheless, the sector has been recovering its strength, month after month, and the real estate business made its debut in 2017 with 124,053 affiliated workers registered for Social Security purposes. Since January, the MoM growth rate has stood at around 1%, with around 1,000 new jobs being created each month, until the summer, when the rate of increase stagnated.

The strong performance in terms of employment in the real estate sector goes hand in hand with the recovery of the job market in general right across the country. In October, the Social Security office registered 17 million affiliated workers, which represents an improvement of 3.9% on the total employment figures recorded in the same month in 2016. The growth rate of employment in the real estate sector (6.4%) clearly shows that it is moving at a faster pace than the economy in general.

If we add employment in real estate activity with employment in the construction sector (the construction of buildings, specialist construction work and civil engineering), then the sector recorded an average of 1.27 million affiliated workers in October, up by 6.7% compared to the same month last year.

Unemployment rose by 56,884 people in October

The number of registered unemployed people at the Public Employment Services’ offices rose by 56,884 in October compared to the previous month. Nevertheless, the increase was well below the average rise in the unemployment figure in October over the last eight years, which amounts to 90,000 people.

In YoY terms, unemployment in Spain fell by 7.9% in the tenth month of the year, bringing the total number of unemployed people to 3.46 million. By economic sector, registered unemployment decreased above all in the construction sector, whilst it increased in the agriculture, industry and services sectors.

Original story: Eje Prime

Translation: Carmel Drake

Carmila Signed 437 Lease Operations In 2016

26 January 2017 – Cuatro

Carmila, the real estate subsidiary owned by Carrefour, has completed its third year of activity in Spain, during which time it has signed 437 commercial lease operations, according to a statement made by the company.

Specifically, the company led by Sebastián Palaciones signed 206 new operations corresponding to a gross leasable area (GLA) of 20,662 m2, and also secured the continuation of 231 strategic clients with contract renovations covering a total surface area of 22,655 m2.

Similarly, the firm, which has more than 1,100 specialty leasing contracts in its portfolio, confirmed the company’s commitment to this retail format, which includes the opening of stands, promotional events for leading brands and the innovative concept of pop-up stores, amongst other activities.

The most active regions in terms of rental space leased in 2016 were Andalucía, accounting for 27% of the operations signed, followed by the Community of Valencia (17%), Madrid (14%), Galicia (7%) and Castilla La Mancha (6%).

By retail sector, the largest share of surface area was leased to restaurants, with 45 new contracts, followed by fashion stores, with 25 contracts, whilst telephone companies were ranked in third place, with 20 contracts.

Carmila was constituted in April 2014 by Carrefour, which controls 42% of its capital, with the aim of generating value from the shopping centres located next to its hypermarkets. The other shares in the firm are owned by major institutional investors.

In Spain, the company owns 70 shopping centres, spread across 32 provinces in high-end strategic locations. Its assets are worth more than €1,000 million and the company also manages almost 2,500 stores and medium-sized outlets.

Original story: Cuatro

Translation: Carmel Drake

Ministry Of Development: House Sales Grew By 8.9% In Q3

14 December 2016 – ABC

House sales grew by 8.7% during the third quarter of the year, to 102,216 transactions, whereby reaching a seven-year historical quarterly maximum, not seen since the same period in 2009, according to data from the Ministry of Development.

The increase has been driven by sales of second-hand homes, which accounted for 90.1% (89,014) of house sales during Q3, up by 10% compared to the period between July and September 2015.

By contrast, the number of new home sales decreased by 5.7% during Q3, to 8,912 transactions, i.e. 9.9% of the total. House purchases by foreigners represented another driver of the growth in transactions, given that overseas buyers acquired 18,115 homes in Spain during this period, up by 7.3%, to account for 17.7% of all homes purchased.

Most of these homes were acquired by foreigners who are resident in the country – they purchased 17,296 homes, up by 10% compared to a year earlier. By contrast, the number of homes purchased by non-residents decreased by 31% to 819.

In terms of the behaviour of the market by autonomous region, decreases in house sales were recorded in just seven regions, led by Navarra, with a decrease of 14.3%, Murcia (-12.3%) and the Canary Islands (-10.6%).

At the other end of the spectrum, Asturias, Cataluña and Aragón were the regions where house sales grew by the most between July and September, with increases of 28.4%, 24.5% and 20.6%, respectively.

At the municipal level, Madrid was the city that recorded the most activity in terms of transactions in the residential market, with 6,816 operations in the third quarter alone, ahead of Barcelona (3,870 sales) and Valencia (1,926 operations).

In terms of subsidised housing, the number of sales also grew during the last quarter, albeit in a more moderate way (by 4.2%), to 4,290 transactions.

The Ministry of Development compiles these statistics based on data provided by the College of Notaries, which captures the number of house sales formalised by public deeds in notarial offices.

Original story: ABC

Translation: Carmel Drake

Inv’t In Retail Assets Exceeds €1,800M In YTD16

8 September 2016 – Expansión

So far this year, transactions amounting to more than €1,800 million have been completed (in the retail sector). Moreover, the development market is expected to be reactivated.

After years of low and moderate activity in the retail sector, the exit from the crisis represented a turning point and the last two years have been particularly intense in terms of investment in shopping centres and retail parks. In addition, experts forecast that sales growth will continue during 2016, along with the development of new projects.

In this way, whilst investment in the office segment has moderated during 2016, following the significant activity that was registered there last year, activity continues a pace in the shopping centre sector and, records are being broken, such as, for example, with the sale of Diagonal Mar (Barcelona) for €493 million in August.

Growth in income

Thus, during the first eight months of the year, investments amounting to more than €1,800 million have been made. The big four have strengthened their position as advisors to these types of operations. For example, Deloitte was the buy-side advisor in the Diagonal Mar deal, whilst CBRE advised on the sell-side.

Growth in the economy, as well as an improvement in consumption have represented a wake-up call for shopping centres and, in 2016, sales are expected to grow and the promotion of new projects is expected to be reactivated. Moreover, given that sales are growing at a faster rate than the volume of visitors to shopping centres, the ratio of spend per visitor is also improving. Thus, as a result of the good results and the demand for premises, rents in prime shopping centres increased in 2015 for the first time since the outbreak of the crisis, by between 5% and 10% on average, according to a report from CBRE.

Last year, investment in shopping centres and retail parks exceeded all expectations, with a total volume of €2,650 million. In terms of the profile of investors, the Socimis were the major players, with Merlin and Lar leading the charge, along with fund managers.

According to CBRE, although the economic and political uncertainty is concerning buyers, it has not affected investment activity in retail assets. The consultancy firm estimates that 2016 could end with a total investment volume of €2,000 million in the shopping centre sector.

“Opportunistic funds that invested between 2012 and 2014 are busy divesting in 2016, having reached their target returns much sooner than expected. Institutional investors, which have a much lower cost of capital, are now taking over the reins, now that the yield offered by shopping centres in the rest of Europe is lower than in Spain, despite the fact that the evolution of the consumer environment is less favourable than in our country. We have never before enjoyed such a favourable environment for completing transactions in Spain”, explained Javier García-Mateo, Partner in Financial Advisory at Deloitte.

For José Manuel Llovet, the Director of Retail in Spain at Lar, shopping centres have great potential. “Sales are increasing along with consumption, which means that shopping centres are managing to achieve much higher rent increases than offices, which have not ended up experiencing the improvements that were expected at the beginning of the recovery”, explained Llovet.

Original story: Expansión (by Rebeca Arroyo)

Translation: Carmel Drake