5 July 2018 – Eje Prime
Commercial premises, especially those located on the most prime streets of Spain, are proving highly sought-after. According to CBRE, the high street investment market is going to achieve record figures in 2018, up to a total of €1.1 billion. The culprits? The German fund Deka and Inditex, in addition to the strength of secondary cities in the country.
During the course of the last two years, investment in high street assets remained stable at around €800 million per year, after peaking at €1.01 billion in 2015. In 2018, according to calculations from the real estate consultancy CBRE, the investment volume will exceed the €1 billion threshold again, primarily due to the impact of the sale to Deka of a batch of 16 Zara stores for €400 million and the boost from activity beyond Madrid and Barcelona.
Deka has whereby become a catalyst for the retail investment market in Spain, together with Generali and Union Investment, which also starred in major investment operations during the first few months of 2018.
Deka’s €400 million operation was the largest in the last year and a half, followed by the purchase by Hines of number 17 Paseo de Gracia for €113 million and the acquisition by Generali of number 9 Preciados for €107 million.
Institutional investors are the main drivers of the investment market in this segment, according to the Retail keys in Spain report in CBRE. “In recent years, several overseas institutional investors have entered the Spanish market and many have been active in 2017 and 2018”, according to the document, which points out that Socimis such as Tander, Ores and Silicius have also been interested in the sector.
Madrid and Barcelona are continuing to be the main magnets for high street investment in Spain and, together, they account for 79% of the total expenditure. “Nevertheless, other cities in Spain are booming and demand is rising for investment products in cities such as Bilbao, Valencia, Sevilla and Málaga”, says the document.
The displacement of demand to other cities is a consequence of product shortages and low returns. On the one hand, according to CBRE, operators have accentuated their preferences for prime streets, which has strengthened the shortage of products. “Premises with recently signed contracts are sparking a lot of interest, given that if they reflect market rents, they become a very stable long-term investment”, says the document.
On the other hand, the pressure on returns remains strong and in 2017, they were compressed further still, reaching levels of 3.25% in Madrid and 3.50% in Barcelona for the most prime products. The “historically low” values are repeated in other European cities, with 3.25% in Berlin, 3% in Milan, 2.75% in Paris and 2.25% in Munich.
As a result of those two elements, investor interest is extending to other cities in Spain, although the operations closed tend to be of greater importance, “given that the premises and the rents are lower and the returns are higher”.
With investment of €170 million outside of Barcelona and Madrid in 2017, several purchases stand out such as M&G’s acquisition of the H&M store on Reyes Católicos in Granada as well as of the El Corte Inglés building in Plaza la Magdalena in Sevilla.
Valencia and Bilbao are the markets that, typically, generate the most interest from investors due to the size of the two cities, the importance of their high streets and the role of tourism. The tradition of investment in the segment by local family offices means that returns there are compressed to 4%.
Retail and shopping centres
High street premises accounted for 25% of the total investment in retail in 2017, well behind shopping centres, which accounted for 51% of the total, but ahead of retail parks (15%) and portfolios of supermarkets and hypermarkets (9%) (…).
In Spain in 2017, investment in the Spanish retail market amounted to €3.3 billion. CBRE forecasts that the figure will amount to €2.9 billion in 2018, boosted by high street investment (…).
Original story: Eje Prime (by P. Riaño)
Translation: Carmel Drake