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BANKING

Spanish real estate equities: Get a grip

Joe Valente, head of research, DTZ.

Soft but bumpy landing

This year will be a transitional period for real estate markets in Europe. It will be the year when the nature of the real estate market as a global asset class, dependent and vulnerable to the ebbs and flows of local supply demand, will come centre stage. Over the course of the past five years real estate value has been determined largely by yield compression driven by international capital. Going forward the driver of value in real estate shifts towards rental growth, which is clearly a function of local supply demand. The Spanish market shows all the characteristics of that attrition between global investor demand and local supply demand.

In the recent past the Spanish economy has enjoyed reasonable growth, employment gains and a significant rise in consumer demand. Inevitably this has been reflected in strong demand in the housing sector, retail as well as logistics. Sound economic growth coupled with the weight of investment capital globally meant that Spanish real estate was also actively pursued by international real estate investors. The net result was that yields compressed further to around 4.5% in both Madrid and Barcelona office markets.

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