Spanish investment volume records 10% year-on-year rise

Savills latest Spanish research report shows that a fourth quarter pick up in activity in Spain’s commercial property market resulted in a 10% year-on-year (yoy) rise in investment volume in 2012, to ?2.1 billion. However, the international real estate advisor highlights that 50% of this year end total is accounted for by three individual transactions, namely the sale of Torre Picasso for ?400 million, the purchase of the Canalejas complex, Banco Santander’s headquarters in Madrid, by Villar Mir group for ?215 million and the purchase of the 439 CaixaBank bank branches.

The firm notes that overall the Spanish investment market continues to be dominated by domestic investors who accounted for 61% of the total transaction volume in 2012. These investors focused mainly on office and retail assets with the two sectors jointly accounting for 79% of activity in 2012. Key investors include Pontegadea, the Inditex Group’s real estate vehicle which added several properties to its portfolio in 2012. Aside from Torre Picasso, Pontegadea acquired three Barcelona assets including an office building at Paseo de Gracia 56, a retail unit housing Apple’s flagship store at Paseo de Gracia 1 and BBVA’s headquarters on Paseo de Gracia 5.

Savills observes that whilst activity from foreign buyers remained subdued, Latin American investment into Spain rose significantly, making up 22% of the total investment volume in 2012, up from approximately 0.5% in 2011, and representing 55% of international investment. Capital from Chile, Venezuela and Mexico amounted to approximately ?488.5 million, compared with ?8 million in 2011, according to Savills data, largely due to the purchase of 439 CaixaBank bank branches by Mexican property firm Carso for approximately ?430 million.

Luis Espadas, head of capital markets at Savills Spain, says: “Activity from foreign investors has been limited over the last 12 months but there are international buyers on the sidelines, such as opportunistic investors from the US, monitoring Spain’s market indicators and economy waiting for the right time to invest. Latin American investors certainly boosted the Spanish investment volume in 2012 and we expect to see continued interest from across the Atlantic partly due to cultural and language similarities but also because they believe the market presents good investment opportunities.”

Savills research shows that prime yields across all sectors moved out by on average 50 bps in 2012, mainly due to ongoing rental adjustments. Currently prime yields for offices stand at 6%, for shopping centres at 6.75% and prime yields for high street retail stand at 5.5%, putting them above current European averages of 5.5%, 6% and 4.6%, respectively.

Gema de la Fuente, head of research at Savills Spain, comments: “Due to the current economic climate the market in Spain continues to be challenging. However, steps taken by the Spanish government such as restructuring the banks and creating Sareb, the so-called ‘bad bank’, to isolate toxic assets show a commitment to addressing the situation and give investors confidence that Spain is on its way to recovery and a return to stability.

“In 2013 we expect investment volumes to remain similar to last year unless we see some portfolio transactions. Private domestic investors will continue to have the upper hand in terms of market knowledge and these buyers will remain focused on prime offices and high street retail units around the ?30 million mark. This is because they can acquire these properties without the need for financing and expect them to increase in value once the market has bottomed out.”

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