COMMENT Spain has seen the benefits of a dramatic economic upturn driven by ambitious structural reforms that have been implemented over the past few years. Businesses are becoming more confident in a sustainable future and investors that “bought into” the real estate recovery story have reaped the rewards, writes John Mulqueen, head of transactions EMEA at CBRE Global Investors.
Commercial rents have recovered strongly and cyclically high yields that overestimated the risks for investing have reversed. The performance from our own local property portfolio has been stellar. Spain has become a target for international capital which is unsurprising as it is the fastest-growing major euro zone economy by some margin.
Our conviction remains that Spain’s recovery is becoming further entrenched and that property returns should continue to be among the strongest in Europe.
Over the past three years, the euro zone’s fourth-largest economy made steady gains and has now managed to eclipse its pre-financial crisis GDP peak. Growth has exceeded 3% in each of the past two years, and CBRE Global Investors’ research and strategy team says a similar rate is likely this year.
Encouragingly, economic expansion is occurring in a more balanced fashion than in the run-up to the 2007 crisis. Spain now has a dynamic labour market, with increased employment participation and job creation in sectors that offer comparatively high wages in the technology sector, such as big data and digital marketing. Unemployment is at its lowest rate since 2009. Given these favourable metrics, it is not surprising that after four years of negative net migration, the population has begun to rise.
This backdrop has created a more balanced occupational market between landlord and tenant with genuine rental growth. It is fair to say that the movement in rents hasn’t been as quick or pronounced as many of the private equity players and US-based distress hunters were underwriting three-to-five years ago.
A key reason for this is that the downturn in Spain caused local occupiers to be very cautious committing to new space. Office occupiers, in particular, have been working their space harder, with utilisation ratios in Madrid among the highest in Europe. We believe that with improving business sentiment, this should begin to unwind as businesses look to attract and retain talent by offering them inspiring space.
Our two latest major acquisitions highlight the direction in which we see the Spanish market evolving over the coming years. We acquired a highly prominent building located at one of Madrid’s most prestigious and prominent junctions, Plaza Colón 1, equivalent to Trafalgar Square in London or Place de l’Etoile in Paris. We expect a globally recognisable company to take this space to establish a flagship store to showcase their brand.
In Barcelona’s Plaça de Catalunya (pictured) we have invested in a prime mixed-use office and retail asset on behalf of a separate account client. Barcelona is a beautiful and vibrant city offering a quality of life that appeals to tech-oriented mobile millennials.
Plenty of tangible evidence supporting the outlook for strong returns coupled with the quality of lifestyle, culture and climate lead us to believe that Spain has a strong case to attract global occupiers and investors alike.
