Investors On The Hunt For Prime RE Assets

20 April 2015 – Expansión

Opportunities / The Spanish real estate sector has aroused interest from all types of purchasers, from those that are more opportunistic in nature to those that are seeking lower risk. Offices, shops and shopping centres are the most sought-after assets, but hotels and logistics centres offer the best returns.

The volume of investment has increased from just over €3,000 million to more than €8,500 million in only 12 months. That has been the evolution recorded by the non-residential real estate segment, which reflects the highest level of interest from all kinds of investors in Spain. Thus, the Spanish market has become the second most attractive country for investment in Europe, according to the consultancy CBRE.

But, what are these investors looking for in Spain? Based on the nature of the deals closed last year, offices and commercial assets (both shopping centres and high street stores) are the most sought after. “The transactions that spark the most interest have a value of between €40 million and €50 million, rely on financing for 50-60% (of the price) and generate an initial return of between 5% and 7%. Investors are looking for buildings with: occupancy rates of more than 70%; solvent tenants; and (lease) contracts lasting for around 6 years”, explain sources at JLL, based on data collected in a survey prepared together with the Iese Business School from more than 100 investors.

Excess demand for buildings, and for offices and shopping centres in particular, has led to “very competitive processes for star assets, i.e. those that are best placed in terms of location or that have high rentals, as well as good buildings that require management to improve their profitability”, explain sources at Catella. “Socimis and US funds are very active, along with institutional funds. All of them are creating strong investor pressure”, they add.

The fierce competition has meant that offices and commercial assets no longer offer such high returns, and so many investors have started to invest in other kinds of assets, such as logistics and industrial centres and hotels. Thus, whilst deals involving offices in prime locations offer a return of 5.5%, well-located industrial assets generate a return of 8.25% and logistics centres in secondary areas produce returns of up to 9.5%, explain sources at Deloitte Real Estate.

In the hotel segment, the experts predict that the volume of investment in 2015 will exceed that recorded last year (€1,081 million) thanks to deals involving distressed assets and the activity of debt portfolios, given the shortage of attractive assets.


Another possibility being considered by investors looking to enter the Spanish market and make a good return is the recovery of out-of-date properties or those without good lease contracts, through their renovation. “On the one hand, Socimis are looking to purchase offices, logistics assets and shopping centres that guarantee a return of between 6% and 7.5%. On the other hand, we have the real estate funds owned by private equity firms, which are looking for riskers assets that offer higher returns, such as properties that require renovation or land that needs developing. The expected returns in those cases can exceed 15%”, explain sources at Deloitte RE.

“Investors are becoming increasingly sophisticated and demanding. As has happened in other European countries, the most efficient buildings are going to be the key and, in the case of the financial district in Madrid, they have the lowest availability rates in Europe for that type of asset, which opens an important niche, both for investment as well as for the renovation of existing properties”, say source at Knight Frank.

Original story: Expansión (by R. Ruiz and Y. Blanco)

Translation: Carmel Drake

Real Estate Invesment In Madrid Tripled In 2014 To €3,600M

16 March 2015 – Yahoo Finance

Real estate investment in Madrid tripled in 2014, to reach €3,600 million, compared with €976 million in the previous year, according to a study conducted by BNP Paribas Real Estate.

In addition, office rentals in the capital have risen for the first time since 2008, with an increase of 10% with respect to the previous year, due (mainly) to “prime” income, which reached €312/m2 per year at the end of the year.

In the meantime, investment in Barcelona also increased, although to a lesser extent (by +9%), to amount to €1,300 million in 2014. Similarly, the city registered record office rental figures, exceeding the levels achieved in 2007 by 18 basis points.

In this line, the study highlights the recovery in the markets that were hit the hardest by the crisis: in Dublin and Madrid, for example, investment increased by 120% and 278%, respectively (last year). London, which recorded a slight decrease with respect to 2013, attracted the highest volume of investment in Europe, with almost €30,000 million, followed by Paris, where investment amounted to €17,000 million.

(Across Europe), investment in non-residential real estate increased to €108,000 million, of which €74,000 million related to offices, a volume that made last year the best year since 2007.

Office leases increased by 10% in Europe

Office leases in Europe increased to reach 11.7 million square metres in 2014, i.e. 10% higher than in the previous year, driven by growth in Paris, Berlin and Brussels.

The study reflects that the improvement in economic conditions and the labour market in 2014 had a positive affect on the office market in Europe. In this way, the return of large transactions has contributed to good results in most markets.

As in previous contexts, the main drivers of demand were reductions in costs and rationalisation; similary, users maintained their preference for new buildings in good locations.

Despite the significant increase in office leases, the average vacancy rate in the 35 cities analysed decreased by 10 basis points only and is still above the threshold of 10%. These levels are possible because the reduction in available space was in partly offset by a higher volume of new developments and the freeing up of second hand space as users relocated, according to the real estate consultant.

However, the lack of supply in central areas has kept rents under pressure in the case of ‘prime’ category buildings. As a result, average ‘prime’ (rental) income increased by 3%, driven by increased activity in rising markets, such as London and Dublin.

By contrast, rentals in peripheral districts evolved in the opposite direction, as they continued to suffer from high vacancy rates, which forced owners to offer incentives to prevent price decreases.

Original story: Yahoo Finance

Translation: Carmel Drake