Otis Elevators Forecasts Recovery In Spanish Real Estate

20 January 2015 – Bloomberg

The view from the top floor of the Madrid headquarters of the Otis Elevator Company is that a recovery for Spanish real estate is at last in sight.

“We still need one more year to see clear growth in new building, but the outlook is improving,” said Bernardo Calleja, chief executive officer of Zardoya Otis SA, the company’s Spanish unit, in an interview in Madrid. “We will be selling more elevators in Spain in 2015 for sure.”

Calleja’s job running a company that has built and services a quarter of Spain’s stock of about a million installed elevators gives him a unique perspective on the state of Spain’s real estate market as it emerges from a seven-year slump. Spain went through a building boom before the European financial crisis, with the ensuing credit crunch sending housing starts tumbling 96 percent in 2013 from their peak in 2006.

Zardoya (ZOT) Otis is still relying on increased investment in building refurbishment and modern elevator equipment to drive sales. However, new residential building is starting to pick up in cities such as Madrid, Barcelona and Bilbao, said Calleja.

That’s good news for a company whose annual earnings have been dropping since 2010 and whose revenue from new equipment installations are down 75 percent from 2007 levels. Sales of elevators at Spain’s biggest supplier of the machines rose 14 percent in 2014 compared with the previous year, said Calleja.

Spanish history and housing policy put in place in the era of dictator Francisco Franco has made Spaniards among Europe’s most prolific apartment dwellers. As much as 65 percent of the Spanish population lives in apartments compared with 54 percent for Germany, 14 percent for the U.K. and a European Union average of 41 percent, according to Eurostat.

Elevator Country

The result is that Spain has more than 19 elevators per 1,000 inhabitants compared with about 11 for western Europe as a whole, about three for the U.S. and five for China, according to an August 2014 report by Credit Suisse.

Zardoya Otis maintains and services about 250,000 elevators in Spain out of a total of 1.9 million worldwide for Otis Elevator, a unit of United Technologies (UTX) Corp., the world’s leading maker of elevators, escalators and moving walkways.

A burst of growth engineered by Franco as he opened up the economy at the end of 1950s helped swell migration from the countryside to cities where new arrivals needed housing.

Encouraging home ownership was a key goal of the technocrats linked to the Catholic movement Opus Dei that Franco entrusted with running the economy as they sought growth while keeping Spain as a socially conservative country, journalist John Hooper wrote in his 1986 book “The New Spaniards.”

Legal Change

In 1960, Franco passed a law that encouraged investment in new buildings that could be sold for individual apartments. It was one of the legal changes that shaped the dense new barrios of housing blocks that fringe the historic hearts of Spanish cities, said Juan Antonio Modenes, a researcher at the Center for Demographic Studies and Geography department at Barcelona’s Autonomous University.

“The Spanish model of housing is not something historical — it’s really quite recent,” said Modenes. “There was migration to the cities and people bought apartments because the supply was already there.”

As high-rise apartment construction gathered pace, so did demand for the elevators made by Zardoya Otis, created by the 1972 merger of a company founded in Bilbao in 1919 and a unit of Otis. The firm thrived during a Spanish property boom that drove an eightfold increase in real estate-linked lending from 2002 to a 325 billion-euro peak in 2009.

Wave Down

The company learned the hard way that their ride up with the building boom had a flip side: It had to take the wave back down when that market slowed.

The bust that followed put more than 1 million people in the construction industry out of work. Housing starts fell to 29,232 in 2013 from a peak of 664,923 in 2006, according to Spain’s public works ministry.

Shares in Zardoya Otis, which trade on the Madrid stock exchange, are down about 60 percent from their 2007 high as revenue fell by a fifth between 2008 and 2013. The shares closed 2.5 percent higher at 9.60 euros yesterday.

The outlook for new elevator sales is starting to improve for Zardoya Otis as Spain emerges from its construction slump, said Gonzalo Sanz, an analyst at Mirabaud.

Still, the recovery in real estate looks patchy at best.

Home sales in Spain jumped 14 percent in November from a year earlier, according to the National Statistics Institute. While sales of used homes jumped 42 percent, sales of new homes — the sort that might need a new elevator — slid 21 percent.

Not Easy

It won’t be easy for Zardoya Otis as Spanish apartment administrators still lack funds to invest in elevator maintenance while weak inflation makes it hard to raise prices, said Sanz, who has a sell rating on the stock.

Calleja likes to point to features of Spain’s housing stock that may generate revenue in the future, such as the fact there are still 700,000 buildings of three levels or more that don’t have elevators. Their owners may tire of taking the stairs as they get older, he said.

Real growth will come when economic conditions improve enough to make Spaniards revert to their entrenched habit of buying the apartments they live in, said Calleja.

“Residential housing is the real motor of growth and it was the reason why we had such high growth for so many years,” he said.

Original story: Bloomberg (by Charles Penty and Sharon Smyth)

Edited by: Carmel Drake

Spain, World’s Leader in Elevator Industry

14/10/2014 – El Mundo

Although the Spanish boarders encompass a 500.000 square kilometer area, nearly 65% of its population lives in blocks of flats. The fact explains why the country takes the lead in the entire world with almost 20 elevators per each 1.000 inhabitants. Looking out for the number two could take some time as Italy scores much below with 14.7 lifts for each thousand of citizens.

The information proceeds from a study drawn by Credit Suisse and business portal Quartz. According to the report, the phenomena may be cleared out by the fact that most of Spaniards are property owners. The Organization for Economic Co-operation and Development (OECD) points out that some 83.2% of the Spanish homes are privately owned, while in countries like Germany or Switzerland the percentage showes 41% and 38% respectively.

Ireland, that also got through a real estate bubble, ranks the second with 81.4% properties in ownership, but the difference is that only 4.7% of the Irish lives in apartment blocks, therefore closing the other list. Similarly to Spain performs Italy, which has got 14.7 elevators per each 1.000 inhabitants and 51.1% of its population lives in multistory buildings. Some 67.9% has a home for their own.

In the context of living in apartment blocks, as we already know, Spain wins as the European leader. The country is followed by Greece and Switzerland (in both 59.7%) which are facing spacial problems as they cover much smaller areas than the Iberian leader. Above the average, there posts the whole Eurozone (46.2%) and the European Union (41.4%). Behind Ireland, though in a distance, there arrives Norway (13.3%), the United Kingdom (14.5%) and the Netherlands (18.6%) as the countries where the citizens avoid living in tall buildings.

Historical Overview

Spain became the number one in the elevators scope for several reasons having their roots in the past. Firstly, industrialization of the country provoked a rural exodus as many people flocked to cities. Housing demand was already high and it was additionally boosted by the total destruction caused by the Civil War.

Ruined and damaged buildings were being replaced with apartment blocks during the dictatorship of Franco to meet the wave of internal immigrants. Quintessentially, rental received strong support from the Government of that time.

For instance, tenants practically could not be evicted, they paid stable monthly dues and even a close relative could inherit renting right to a property. In the 50s, facing next huge migration movements, the ruling Authority ordered to sell the homes to the tenants at very low prices. In 1957, the Minister of Housing in office that time, Jose Luis Arrese said: ‘We want a country of owners, not proletarians’.

Sales shot up. Newly created neighbor associations wished to improve their buildings and the elevator business flourished. No wonder then, that 94% of surveyed Spaniards are pleased with their dwellings (statistics by the OECD).

Quartz adds that the nation shows a very long-established inclination towards their environment and work place and they rather reluctantly consider job offers in other parts of Spain.

 

Original article: El Mundo

Translation: AURA REE