Over the last six months or so the Spanish economy has been under intense pressure and indeed the Spanish government is fighting fires on a number of fronts. Debt continues to move higher, unemployment is at record levels and some areas of Spain are looking for independence which is causing major difficulties for the authorities. However, amidst all this doom and gloom there are signs that the Spanish commercial property market is showing signs of life and overseas investors are beginning to take a keen interest.
Knight Frank’s, a well-known estate agent and commercial property consultancy, has highlighted a number of new developments in the Spanish commercial property market. In the first half of 2013 just under 200,000 m² of office space changed hands in Spain which was an increase of around 60% on the same period in 2012. Even though 50,000 m² of this capacity was taken up by Vodafone with a new head office it is still an interesting sign for the future.
Has the Spanish economy hit rock bottom?
While there is interest in commercial property it is worth noting that retail property in Spain is still struggling to attract a significant increase in investment. As we mentioned above, the Spanish economy still under pressure, the government is finding it difficult to reduce the budget deficit and Spanish unemployment seems to get worse every month. Against this backdrop the lack of interest in retail property is perhaps understandable – but why renewed interest in commercial property?
If you take a look at stock markets, many people believe that stock valuations today are based upon assumptions over the next nine months therefore assuming interest in commercial property in Spain continues to grow we may well be nearing the bottom of the market. This is an interesting assumption because at this moment in time it is difficult to see any light at the end of the tunnel for the Spanish economy.
Quote from PropertyForum.com : “The Spanish government has issued a warning to homeowners in Spain amid signs that unqualified assessors and fraudsters are operating in the country. Last month saw a change in property legislation across Spain with the introduction of energy efficiency certificates which are in line with the energy performance certificates used in the UK.”
International investors bottom fishing
Despite the lack of interest in Spanish retail property a number of the more heavily populated shopping centres are still changing hands at reasonable prices. There seems to be interest at the top end of the retail property market but on the high streets of Spain it is proving difficult, as it is in many other countries, to make ends meet.
Perhaps one of the long-term benefits of investing in Spanish office property in particular at this moment in time is the 6.25% yield available on Madrid assets for example. When you compare this to the 2.75% yield available on prime property in London it certainly does put things into perspective – although perhaps some experts still believe there are greater risks associated with Spanish property assets at the moment. However, it is the diverse nature of investors looking towards Spain which is most intriguing with particular interest from Latin America and Germany.
As with any investment market, when the Spanish economy finally turns the property market will follow and it will likely be a short sharp bounce upwards. Those looking to perfectly time an investment in Spanish property will be very fortunate to do so which is perhaps one of the reasons why international investors are now starting to put their toes in the water. Bottom fishing towards the lower end of the market, assuming there are no more economic shocks in the short to medium term, will at worst allow investors to average down if the market moves any lower or they could even average up if the market turns and the economic outlook improves.
There are few international investors who would look to invest all of their overseas cash into one specific market at one time. Look to average down or average up, if the situation improves, is a way of ensuring that you have a position, at a reasonable level, from which to start. History shows us that once the market does turn it will likely turn very quickly and any improvement may even be ahead of expectations with some investors trying to “jump the gun”.