CB Richard Ellis figures reveal that only seven investment transactions occurred in the Spanish retail sector during 2010, totalling €550m. Of these, five deals were sales by Spanish hypermarket chain Eroski, mainly in the form of sale-and-leaseback deals, as it sought to raise capital.
Compared with the peak of the market – €2.7bn was transacted in 2006 – this is a paltry figure.
“It’s a return to the levels we saw in 2000-04 so, in many ways, it’s a return to normality,” insists Danny Kinnoch, Madrid-based international investment director with Savills.
But there is clearly demand for the right product in Spain. All eyes are on the sale by a local consortium of a 50% stake in the 204,380m2 Puerto Venecia scheme in Zaragoza, in the Aragon region.
The buyer will partner joint owner British Land and it is understood that UK-based private equity firm Orion Capital Managers is close to striking a deal.
Rupert Lea, partner in Cushman & Wakefield’s Madrid office, explains that buyers still want prime assets with solid income streams; an increasingly rare commodity.
He points to last December’s purchase by German fund Deka Immobilien of the Ballonti scheme in Bilbao, northern Spain, from Eroski for €116m at a yield of 6.75%.
Also, Morgan Stanley, on behalf of owner Altrea, is seeking a buyer for a scheme in Sant Cugat del Valles near Barcelona. Dutch firm Eurocommercial Properties came close to buying it, but German giant Unibail-Rodamco is understood to be the front-runner.
“They are two examples of demand coming from core-plus buyers,” comments Lea.
“As prime stock dries up, the focus will shift to secondary schemes. If prime yields are around 5.75%-6%, there will be pressure on secondary stock, which will shift to 6.5%. But it’s not there yet.”
Henderson Global Investors recently took the plunge, buying the Meixueiro retail park in the western town of Vigo on behalf of Warburg Henderson’s RZVK-Immo-Fonds for €35m.
“The client was investing in Spain for the first time and wanted a solid stream of income with strong occupiers,” explains the head of Henderson’s Spanish branch, Manuel Martin. “Vigo offered all of that.”
Martin adds that there is a weight of cash trying to find a home in Spain: “We are working with a range of funds. We have five clients open to investing, all looking for €30m-€60m lot sizes.”
Like Lea, Kinnoch agrees that demand will turn towards good-quality secondary stock.
He says: “There are lots of opportunistic funds in the market. The UK and US players are active, but have very high return requirements, so they need to buy cheaply, turn the scheme around, and sell it on.”
Since the onset of the global downturn, international critics have unflatteringly labelled Spain – along with its Southern European neighbours Portugal, Italy and Greece – as one of the faltering PIGS economies.
The Bank of Spain’s latest estimates suggest that the country’s economy contracted by 0.1% in 2010; a better performance than many expected, owing to a rally in Q4.
But Spain has huge underlying problems. With more than 1m empty properties, the housing market remains in tatters and unemployment in the latter part of 2010 was close to 20%. The economy faces a major challenge to bring its massive deficit under control and avoid the need for a European Union bailout – Greek or Irish-style.
The cocktail of economic woe and government-led austerity measures is taking its toll on the Spanish retail sector. Figures compiled by Spain’s National Statistics Institute show retail sales suffered a slight drop of 0.5% in the first nine months of 2010. Compared with the decline in sales in 2008 and 2009 – by 5.8% and 5.7% respectively – this is a good sign.
“Spain has been through a difficult 2010,” says CB Richard Ellis director Miguel Agar Locatelli. “We are at the bottom, and a positive sign is that comparison sales for shopping centres showed growth of 1% last year. Overall, 2011 will be a similar year to 2010.”
Rupert Lea, partner with Cushman & Wakefield in Madrid, adds: “Spain is not a basket case. It has a good economy, although it will have a slow recovery.”
VAT increases last year prompted a boost to sales for big-ticket items in the months prior, but now acts as an additional factor working against consumer confidence. Savills international investment director Danny Kinnoch, based in Madrid, says: “My concern is that interest rates will rise. Most Spanish home-owners have variable-rate mortgages, so it could affect people’s spending patterns.”
Fundamentally, Spain’s retail sector remains sought after. It has a strong shopping centre network, with the fifth-highest gross lettable area of shopping centre space after the UK, France, Germany and Italy. Spain also has strong local brands, most notably the Industria de Diseño Textil Group, better known as Inditex, which includes such internationally renowned brands as Zara, Bershka, Massimo Dutti and Pull & Bear.
Manuel Martin, head of Henderson Global Investors’ Spanish operation, says that retail rents in the country have dropped by as much as 30% from the peak of the market. It is a factor, he says, which has allowed some retailers to expand their presence in the country.
“We have seen newcomers such as Hollister and Apple Store in the market,” says Martin. “And Primark is also growing and replacing anchor stores in many schemes.”
While international brands at the more affordable end of the spectrum, such as Primark and Swedish giant H&M, have expanded, mid-range and more upmarket fashion chains – such as US operator Forever21 – have also entered the fray. Inditex continues to perform well, although its attention has been on expansion outside Spain.
“Retailers have taken advantage of a market where rents have gone down,” says CBRE’s Locatelli. “Real estate has become available to them, whereas it was not before.”
While demand might be bearing up, availability is tightening considerably. Jones Lang LaSalle research shows that only 11 new schemes opened last year, contributing around 370,000m² towards Spain’s total shopping centre stock of 14m m². Last year saw the lowest number of openings since 1990, with retail park development accounting for the majority of projects.
JLL predicts that, in the next two years, around 500,000m² in 25 new projects and 15 extensions will open by 2012. However, some agents say that a number of recently completed shopping malls have failed to attract sufficient tenants.
“Development levels have fallen dramatically since the peak,” explains Savills’ Kinnoch. “In 2007, more than 1m m² of space was constructed in Spain. It matched Russia, Ukraine and Poland and the retail density was far superior. It resulted in good schemes being devastated by other schemes.”
The largest scheme due for completion this year is Invest Cos’ 165,000m2 Marineda City scheme in A Coruna, on the country’s north-western coast. Swedish giant IKEA and Spanish department store stalwart El Corté Inglés will anchor the development.
According to the developer, 85% of the floor area has been let. Asked why the developer has launched such a huge scheme against such a challenging market backdrop, José Souto, vice-president of Invest Cos, says: “It’s an ambitious and innovative project that will be one of the first in Europe to combine units of all sizes with two major sources of attraction: IKEA and El Corte Inglés.”
Whether developers will follow Invest Cos’ lead and push the launch button on their schemes is the question now facing the sector.
What are they paying?
• Shopping centre rents in Barcelona are €75-€100 per m² per month
• Madrid’s shopping centre rents are €73-€98 per m² per month
• Madrid’s high street rents headline at €220 per m² per month, with Barcelona at €212 per m² per month
• Retail warehousing rents across Spain are around €15-€19 per m² per month
Source: Jones Lang LaSalle
Who’s taking space?
• Major international brands such as Hollister, Apple Store, Forever21 and German retailer Butlers are expanding
• Spanish stalwart El Corte Inglés has opened multi-brand stores in certain shopping centres
• Operators including Primark, SportZone and Zippy and shoe shops such as Maripaz are continuing to expand
• Toys R Us opened trial temporary stores last Christmas
Source: Jones Lang LaSalle
Who’s investing in what?
• In 2010 four shopping centre transactions were concluded with a total investment volume of €320m
• Hypermarket chain Eroski’s sell-off represented 60% of 2010’s total investment volume, while sale-and-leaseback deals accounted for 36% of this
• Alpha Real Capital bought H2Ocio, 50,000m² in Rivas Vaciamadrid, from Avantis for €84m
• In 2010, Corio acquired Multi Development’s 33,700m² mall in the centre of Torrelodones for €65m
• ING Real Estate acquired the 37,600m² Bilbondo shopping centre from Eroski for €52.5m
• At the end of 2010, initial net yields for shopping centres were 6.5-6.75%, with prime yields for retail warehouse parks stable at 7-7.25%
• Yields for high street units are stable at 5.6-5.85%
