As initial yields come under intense pressure, returns in the Spanish property market are increasingly income-driven, forcing investors to take the development route, PropertyEU's Outlook 2016: Europe & Spain Investment Briefing has heard.
As initial yields come under intense pressure, returns in the Spanish property market are increasingly income-driven, forcing investors to take the development route, PropertyEU's Outlook 2016: Europe & Spain Investment Briefing has heard.
Real estate construction – Spain’s Achilles heel when the financial crisis burst out – came to a standstill in 2009 and remained virtually nil in the country until today, when investors surprisingly started to look at land development once again.
Alexandre Fernandes, head of Asset Management Europe at Portugal-based shopping centre specialist Sonae Sierra, believes the market will begin to show a pick-up in development activity from 2016.
‘Amid a shortage of prime assets, the main market players will soon turn to land acquisition and development. But there are also good opportunities in redevelopment including the refurbishment and expansion of existing shopping centres,’ noted Fernandes, adding that Sonae Sierra is involved in ‘a lot of these initiatives’. ‘We are launching a new project in Malaga jointly with McArthurGlen which should provide a good return.’
The development – expected to become the first designer outlet in southern Spain – will offer 30,000 m2 of gross lettable area once completed and is expected to involve an investment of €115 mln.
Corestate, a Swiss management-owned investor which recently opened office in Spain, is also embarking on a new development project. The Zug-based private equity player has just launched its first major investment in the country with the construction of a €240 mln mixed-use tower in Madrid's Cuatro Torres medical and financial hub. The firm will carry out the 70,000 m2 Fifth Tower project through its 50-50 joint venture with Grupo Villar Mir, one of Spain's largest property groups and a specialist in the development of hospitals and health centres.
Corestate’s head of Spain Jorge Sena says the financing market for development projects has dramatically improved in Spain in the recent past, with debt currently available at an affordable rate. ‘Finance is a key element of a development project. In our case we want to make sure that we have most of the tenants in place before we go to the banks to finance the asset. This will change the risk profile [of the loan].’
