Tag: Knight Frank

What Does The Future Hold For Azca?

16 March 2015 – El Confidencial

In Madrid, the ‘City’ is called Azca. It is the capital’s financial centre par excellence and, yet, a third of the office space in the area is empty. (According to sector experts), the time for change in upon us.

In Madrid, the ‘City’ is called Azca. It is the capital’s financial centre par excellence, home to iconic buildings such as Torre Picasso and many of the world’s leading companies own the properties, including Pontegadea (the real estate company owned by Amancio Ortega), GMP, Mutua Madrileña, El Corte Inglés, Metrovacesa, Testa and Infinorsa. The prime location, in the heart of the Paseo de la Castellana and next to one of the capital’s major transport hubs, Nuevos Ministerios, meant that until a few years ago, this area accounted for the majority of the capital’s prime office space. However, the opening of the Cuatro Torres, the arrival of the economic crisis, the departure of large companies to peripheral areas (of the city) and the lack of investment, both in the properties themselves as well as in the surrounding area, have dampened Azca’s appeal.

The combination of these elements has also had a significant affect on prices. Between 2008 and 2014, prime rents in the capital fell from €39/m2 to €25/m2 (per month), whilst in Barcelona, rents decreased from €22/m2 to almost €14/m2 (per month), according to a report called “Understanding the Office Market in 2014”, prepared by Deloitte Real Estate. The final nail in the coffin in terms of the pressure on the area came with the departure of KPMG, which (last month) decided to leave its headquarters in Torre Europa to move to the Torre de Cristal, at Real Madrid’s former Sports City (Ciudad Deportiva).

Furthermore, BBVA is set to leave its traditional black skyscraper to relocate to the suburb of Las Tablas, and the tenants of the Torre Saint Gobain and Torre Titania are planning to fully vacate; the latter was built by El Corte Inglés on the foundations of the former Windsor. In total, around 67,000 square metres of the 272,000 square metres of above-ground office space in the area is (currently) available to let, which gives rise to the question: is Azca doomed to reduce its prices further?

The answer is no, according to all of the experts, although they admit that the area is at a turning point. In their view, Azca is living through its own catharsis, which may be summarised by the classic phrase – adapt or die. And the widespread belief is that the former will happen. “Right now, Azca has an opportunity to reinvent itself as the ‘City’ of Madrid once more, but it must know how to seize it. In terms of its location, it has the right ingredients and moreover, the higher the vacancy rate, the easier it will be”, say the experts at Deloitte.

In Madrid, barely 2% of the office space in the high quality buildings inside the M-30 is vacant.

In this sense, a public-private initiative, known as the Azca Master Plan (Plan Director de Azca), is underway, which seeks to open up the area and facilitate access from El Coste Inglés in Nuevos Ministerios to the Bernabeu, through three targeted efforts: construction work to improve (the area in general), environmental initiatives and planning. This would mean, amongst other aspects, modifying some of the uses (of the area); the main challenge is to convert the area that is the capital’s business district during the week, into an area for families, shopping and leisure on the weekends, rather than leaving it half empty when the office lights are turned off (on Friday night), which is what happens at the moment.

“Azca must become a digital icon that adapts to incorporate technological developments, that uses the facades of the buildings (creatively), that puts up digital screens to attract young people (to the area) at the weekend, that organises initiatives for the neighbours (of the area) and the wider city, that becomes an icon of ‘digital Madrid’, in the style of New York’s Times Square”, says Ángel Serrano, Business Director at Aguirre Newman.

His company is managing the last major transaction in the area, the sale of Castellana, 89, in which a great deal of interest is being shown; the price may reach €140 million. The same interest was seen recently in the bid to acquire the Torre Saint Gobain, which GMP ended up purchasing for €90 million (with plans to spend a further €14 million on its refurbishment) and the land that El Corte Inglés purchased from Adif for €136 million, when the starting price was €40 million.

These transactions confirm the conviction that the major landlords in Madrid have that Azca is going to emerge stronger from the current situation, which means it will be able to increase its prices again in the medium term. Nevertheless, for the time being, it will have to endure a couple of years “crossing the desert”, during which time GMP, Infinorsa and whoever ends up winning the bid to acquire Castellana 89 will refurbish their buildings as well as the Torre BBVA (where the bank will continue to occupy the top five floors and display its logo on the outside), Torre Saint Gobain and, most likely, the Torre Europa.

It is expected that all of these construction works will be carried out in parallel to the aforementioned Master Plan to relaunch the area, which means that now is the perfect time (for tenants) to move to Azca before all of these improvements have been completed and prices increase. “We are currently experiencing a historic moment in terms of low prices, which provides the perfect opportunity for many of the companies that moved out of the centre and now want to move back. Moreover, this is supported by the gradual recovery of the economy and the privileged location of Azca, which I think will play an important role in its favour (in the future)”, says José Luis Guillermo, managing partner of Inmospace. Nevertheless, in his opinion, this metamorphism of the area will require support from the Public Administrations, not only in terms of the necessary changes to certain uses (of the area), but also in terms of the adoption of measures to promote the entry of multi-national companies into the capital’s ‘City’.

Experts consider that now is the time to move to Azca, before prices rise.

Madrid has some of the highest forecasts for (rental) income growth over the next five years of any city in Europe. Currently, according to data from Knight Frank, its vacancy rate amounts to 11.9%, although in the central business district, known as in the jargon of the trade as CBD, the figure decreases to 7.3%, and for Grade A buildings (highest quality) within the M-30, the vacancy rate is a low as 2%. This means that there are very few good buildings (available) in prime areas in Madrid.

In this context, a third of the leaseable office area in Azca is currently vacant and, despite that, both the experts and the large investors that are bidding to purchase buildings expect average rental income in the area to return to €30/m2 (per month), i.e. 20% more than now, over the next five to seven years. How come?

Patricio Palomar, Director of Alternative Investments at CBRE provides a good summary of where Azca is going and the price of its rentals: “To analyse the evolution, three points should be taken into account: the Master Plan for the area, which will favour (higher) prices; how Azca is going to change in terms of immediate availability, since various buildings are currently being refurbished, which will work in the area’s favour, but that will also mean there is more supply and therefore, tenants will have greater bargaining power, which may contain the increase to some extent. The third element is that there are few square metres concentrated in one area in Madrid and there are few high quality buildings for tenants looking to rent more than 10,000 m2 of space inside the M-30; a supply that Azca will indeed have (in the not too distant future). Add to that the fact that many tenants of this type, which moved to peripheral areas in the past, now want to return to locations such as this one, make me think that we will see price increases”.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Formulas To Capitalize On Construction Sector Recovery In Spain

29/12/2014 – Cinco Dias

The housing market has completely transformed since the burst of the housing bubble; it has gone from what had long been an investment sector to avoid to one that is now giving way to new business models with interesting opportunities for private owners as well.

“2015 is going to be, as it has been since 2014, a good time to buy properties to rent,” says Julio Gil, president of the Real Estate Studies Foundation (EIF), who argues that with an average annual return of 4.5%, residential leasing has become “a much more controllable investment for a small-scale investor” and more advantageous than deposits, given the drop in interest rates to historic lows, or equities, and the ups and downs in strong market volatility.

From his point of view, moreover, this approach allows the individual to benefit from the progressive rise of the rental market — the crisis has reduced the traditional preference for homeownership among Spaniards — exploiting the gap left by large buyers.

Experts envisage new business models with investment opportunities in the housing market

Some international investment funds that have been entering the Spanish market over the last year and a half have also chosen to purchase residential property to lease, e.g. Blackstone that acquired 1,860 homes to rent in the Municipal Housing and Land Company of Madrid, or Azora and Goldman Sachs, who bought 2,935 homes from the Housing Institute of the Community of Madrid (Ivima). However, most have opted to implement this strategy in the tertiary sector.

“The prospects for rent growth are somewhat feeble, while still observing an upward trend in prime-location office rents” highlights a recent report from the real estate consulting firm Knight Frank, pointing to Madrid as one of the rising markets with returns ranging from 5.5% to 8% depending on the type of asset.

This market, however, is not off-limits for the small investor. Despite the stagnant results being seen throughout the first quarter, a handful of investment companies in the real estate market, the so-called REITs, have begun trading during this year. These investment vehicles, which spend 80% of their resources on investing in rental property, are exempt from taxes and their shareholders are only taxed on the dividends they earn.

“Their main targets are prime-location offices and shopping centers, although renting houses and hotels is also on their business plans,” states the latest UBS outlook report, noting that at its base scenario, “The annual return for investors will be in a range between 7% and 10% over a three to four years timeframe, a competitive return even compared to the broad Spanish equity market.”

In terms of prices, Swiss bank experts point out that the price of housing in Spain has fallen between 30% and 40% from its previous highs, a decline despite which “the price of houses in Spain is not cheap”.

In light of this development, they expect further reductions of between 1% to 3% in the coming year and price stagnation in subsequent years. Given this situation, on the whole, UBS notes that it sees no investment opportunity in the Spanish residential sector except the rental market.

Thus investment in housing in the wait of a strong appreciation in the medium term is what all consulted experts dismiss at any rate. With that in mind, real estate transactions are still associated with obtaining a mortgage loan for individuals without large financial resources.

Obtaining a mortgage is a path paved with requirements due to a persistent credit crunch but it is beginning to pick up on the bank windows with deals nearing Euribor plus 1.5% variable interest, and a close entanglement with the bank. The conditions are often particularly advantageous on still strong housing properties, appropriated by banks and SAREB and appearing on their balance sheets. A possible opportunity for those who decide to take advantage of the construction sector recovery in the new year.

Original article: Cinco Dias (by Juande Portillo)

Translation: Aura REE

Harbert Buys The Habaneras Shopping Center From Unibail

24/12/2014 – Expansión

Spain’s real estate sector has been buzzing with activity over the past few months, and it’s going to continue up to the very last days of the year with the close of a major sales transaction. As seen with the vast majority of operations in 2014, the purchaser of the property is a foreign fund; in this case, the American group, Harbert Management Corporation, has closed the acquisition of Habaneras shopping center in Torrevieja (Alicante).

Promoted by Metrovacesa, the shopping mall boasts 64,000 square meters and more than 24,000 meters of retail space. Unibail bought the mall, which is located next to Maquinista in Barcelona, from Metrovacesa for €423 million in 2008.

Last year, the property in Alicante received 3.7 million visitors, according to the Spanish Association of Shopping Centers.

Harbert has shelled out €65 million for the property, according to industry sources. The fund, managed by Knight Frank, has created a REIT.

Unibail is one of the largest owners and managers of shopping centers in Europe and Spain. The company boasts 14 shopping centers in Spain, including Splau in Barcelona; Bonaire in Valencia; and La Vaguada in Madrid. At the end of 2011, it invested €185 million when it bought the shopping center, Splau, in Barcelona, from Acciona, making it one of the largest operations in the sector that year.

The company, which is listed on the Paris and Amsterdam stock exchange, is currently in the midst of an asset turnover in Spain.

Habaneras is not the first center to be sold by Unibail this year. The Franco-Dutch company sold Albacenter shopping mall to Lar España for €28.4 million.

New Projects

The real estate company is not only selling, but also investing in projects, such as the expansion of La Maquinista in Barcelona, and the construction of a new shopping center in Mallorca, whose total investment exceeds €255 million.

Also, Unibail is currently one of the third finalists in the bid for the Madrid shopping center, Plenilunio, for which it is willing to pay around €330 million.

Original article: Expansión (by Rocío Ruiz)

Translation: Aura REE

Spain More Popular Among RE Investors Than UK

24/10/2014 – Cinco Dias

Real estate advisor Knight Frank conducted an in-person survey on 200 investors from the sector and it turned out that Spain has been picked most in response to the question where it is worth to invest in the upcoming six months.

For the first time in four years, the United Kingdom has been defeated by another country. Namely, 26% investors voted in favor of Spain, 25% of the UK and 16% of Germany. In the results, France surprises as only 5% would bet on that market.

Speaking of the specific segments, the surveyed decisively chose the office market (35%), followed by the retail, distribution and residential.

Humprehey White, Capital Markets Director at Knight Frank’s branch in Spain, total investment in the local real estate may amount to €3 billion this year, excluding the sector-related debt sales. ‘From no-go, the country became the main focus of investors. Return on the property hit 200 bps higher than in some other cities, having greater margin expansion possibility and prices per square meter of offices, retail and logistics are currently 50%-off in comparison to the 2007 peak’, he pointed out.

The executive of Knight Frank put a special emphasis on the fact that European real estate transactions more and more often see normally uncommon investors, such as American pension funds, Asian sovereign funds or private buyers from the Middle East. On the Spanish market, habitual investor evolves as well. Vulture funds snapping up debt since the second half of 2013 are gradually replaced with purchasers seeking less risk. In his opinion, acquisition of the Castellana 200, the retail and office center situated on the Paseo de la Castellana street in Madrid, by Canadian pension fund PSP, has been the turning point for the trends on the Spanish property market.

 

Original article: Cinco Días (by Alberto Ortín Ramón)

Translation: AURA REE

“No Recovery Until the Property Investors Are Spaniards”

17/06/2014 – El Confidencial

 He has been travelling all over the world for many years. The experience gained at his office as the head of realtor Knight Frank allowed him to explore how different countries go through the financial recessions. During his recent visit in Spain, Alistair Elliott said “no real estate crash lasts forever”.

Basing on the 30-year knowledge acquired at the property market, the president assured that each sector sees non-correlated, bidirectional cash flows and “a market never shows equality in terms of an investment receiving and transmitting”.

Elliott identifies legal risk and transparence as the main factors determining pricing. That is why such countries as Russia or China remain out of reach of the international equity, unlike Europe enjoying great popularity when it comes to investment. He also mentions the interest of foreign investors in the Spanish property, however he warns “there will be no recovery until Spaniards themselves convert into buyers again”.

According to the chairman of Knight Frank, this will be the true sign of recovery. In his opinion, sometimes there is no time for stopping and analyzing the huge economic engines transformation, meanwhile the distribution and retail trading will offer leverage for those who can look beyond and interpret the consequences emerging from the real estate world evolution.

Moreover, Elliot blames Sareb for detaining the property sector in Spain. He claims that the success of the bad bank becoming useful as a realtor lays in preparation of asset lots and fixing prices. Such bases will enable investors to estimate risk and take advantage of the opportunities our country hands over. But the Spanish investor must take up the reins.

 

Original article: El Confidencial (by Carlos Hernanz)

Translation: AURA REE

Perella, Pimco & Anchorage Vie For the 200 Castellana Building

26/02/2014 – El Confidencial

Irrational. The real estate market is experiencing the greatest activity rebound in years. The most vivid emotions are brought about by the sale of the building at 200 Castelllana Street, a property situated in the north of Madrid, formerly belonging to Reyal-Urbis. Even 22 investors took part in the bidding in the first stage of non-binding offers. Funds Pimco, Perella and Anchorage made it to the final bidding.

International investors are yearning for entering the Spanish real estate market, especially after the price corrections reaching -50% (…).

During one month only, CB Richard Ellis and Knight Frank received 22 offers for the building that includes four products: offices, trading zone, a parking lot and a five-star hotel. The property is less than one year old and yet has not got 100% occupancy rate. (…).

The auction became the talk of the town for the bidders are debuting on the Spanish market. On the one hand, there is the opportunistic fund Anchorage that bought buildings Eurohypo/Monteverde in Madrid and Barcelona within the Copernicus Project. On the other hand, we find the U.S. funds Perella Weinberg Partners and Pimco. The lattest has just joined shareholders of the recently listed Socimi of Grupo Lar.

The bidding´s organizators managed to establish the price at treshold of €150 million promised to the building´s banking holders (Bankia, Sabadell, Santander, BBVA and Caixa). In truth the price is set a long way behind the €320 million invested in the property in the boom times by developer Rafael Santamaria, chairman of Reyal Urbis, currently put up for auction as well. (…).

 

 

Original article: El Confidencial (Carlos Hernanz)

Translation: AURA REE