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January 23, 2018

Overall real estate investment in Spain exceeded 13 billion euros (US$16 billion) in 2017, with signs of a bright 2018 for the European stronghold.

With 2017’s investment volume exceeding 2016’s 9.5 billion euros, the recovery in the real estate market that began in 2014 has become more entrenched, according to Borja Ortega de Pablo, Head of JLL’s Capital Markets team in Spain who believes that “everything points to 2018 being another great year for the sector.”

Insurance companies and REITs will continue to be significant players as the market extends its recovery.

His comments come as Spain looks to resolve a recent vote in a local election which gave a slim majority to parties favouring a split of Catalonia from Spain. On the impact of the situation on the real estate market, Ortega de Pablo says uncertainties remain, but stresses that any dip in prices would create market entry opportunities for the astute investor.

Spain’s real estate market has seen a robust recovery since 2014, notably in the leading cities: Madrid, Barcelona and Valencia. This promising improvement has been phased, starting in 2013 with opportunistic investors, such as Blackstone, who invested in high-risk assets seeking high returns.

The next phase was marked by the participation of the ‘Socimis’ (Sociedades Anónimas Cotizadas de Inversión en el Mercado Inmobiliario), as REITs are known in Spain, led by Merlin, Axiare and Lar España.

These companies pursued share offerings as they raised funds to focus on opportunities in value-add assets and shopping centres.

Increased demand brings a tightening of yields for real estate investors. And, opportunistic funds are probably less likely to expand in the market, according to Ortega de Pablo, there are still “plenty of opportunities for more conservative investors as well as institutional investors.”

The road ahead
Thanks to the government’s quantitative easing programme, the real estate market is delivering more favourable returns than the bond or money markets.

Market recovery is likely to continue to be driven by life insurance companies, and a growing presence of international funds, according to Ortega de Pablo.

Life insurance companies are expected to continue their prevalence in the market’s recovery during 2018, he says, due to “low capital costs and favourable regulatory changes in the residential segment.”

While, foreign capital is increasingly looking to joint ventures with domestic developers as a way of gaining a foothold in the country, bringing financial strength and management expertise. With their Spanish partners providing local knowledge, the arrival of these funds has redrawn the developer’s landscape, says Ortega de Pablo.

Recent examples of these ventures include HIG and Monthisa, Pimco and Lar España and KKR’s partnership with Quabit.

With bigger – and more – players in the market, the number of portfolio transactions has increased and will form a further trend for the coming year, according to Ortega de Pablo. Last August, Santander, Spain’s biggest bank, sold a majority of Banco Popular’s real estate portfolio to Blackstone. The valuation of the assets including properties, loans and tax assets but excluding Aliseda was approximately 10 billion euros, according to a statement from Blackstone.

The sale was followed by BBVA’s announcement in November that it had agreed to sell an 80 percent stake of its real estate business to Cerberus Capital Management for about 4 billion euros. The Santander deal was the largest portfolio transaction in the history of Spain’s real estate market.

“Investors can expect to see similar huge investment transactions this year involving the real estate portfolios of other financial institutions given the challenge of reducing banks’ exposure to property asset risk,” he says.

Click to read more about whether EMEA’s positive fundamentals can extend into 2018

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Borja Ortega de Pablo

Head of Capital Markets, Spain at JLL

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