While many of its European counterparts have been stymied by the tidal wave of populism sweeping across the continent, politically speaking, Spain has largely stayed out of harm’s way – and attracted a tidal wave of capital in the process.
For the past two years, the Spanish real estate market has reached record levels of investment activity. Transaction volumes for the first three months of this year hit a new high of €3.4 billion – a 50 percent increase year-on-year, according to global property services firm CBRE.
Since the financial crisis, a slew of opportunistic firms, including Blackstone, Apollo Global Management, Orion Capital Managers and Oaktree Capital Management, have been busily buying up distressed assets and development land in the country at significantly reduced prices.
But since the start of 2017, traditionally core players such as LaSalle Investment Management, Hines and AEW Europe have become increasingly active in Spain. LaSalle partnered with Aviva Investors to acquire a €70 million mall in Salamanca; Hines and Union-Investment splashed €190 million on office assets in Madrid and Barcelona, on behalf of German pension fund BVK; and AEW Europe opened its first office in Spain, while announcing its intention to expand its Spanish assets under management way beyond the €500 million mark.
The reason for this core upswing has several strands – starting with Spain’s relative political stability compared with its European rivals. Observers also point to the country’s steadily decreasing unemployment levels, coupled with its rising GDP: its projected growth of 2.5 percent is set to outpace the EU average of 1.6 percent.
Based on these core trends, some might assume that the time is up for opportunistic players in Spain. But industry observers claim such an assumption is way off, suggesting there is something of a ‘double market’ at work at present.
With the core market, Madrid and Barcelona still dominate across the sectors, particularly in residential and office. But, increasingly, quality retail assets in secondary markets are also providing core investors with some interesting options, such as the LaSalle deal in Salamanca. Logistics is also thriving, with Zaragoza powering up investor target lists, largely due to its geographic position as the closest port to the Spanish capital and its location at the center of an abstract ‘X’ between the four largest markets of Madrid, Barcelona, Valencia and Bilbao.
As for the opportunistic market, residential land development opportunities still exist in Madrid and Barcelona. Additionally, retail assets that require significant asset management and are located in areas with strong consumer demand, like the Basque country and Andalucía, have also piqued the interest of investors.
Indeed, opportunistic capital is looking at supermarkets and malls in northern Spain that would not have even been considered a few years ago. Last month, Patron Capital acquired three malls in Sevilla, Alicante and Cuenca. Patron already has €200 million of AUM in Spain, but is reportedly targeting an extra €300 million.
Opportunistic powerhouses Starwood and Blackstone are still targeting distressed assets across the country. Starwood is expected to invest half of the capital in its latest global vehicle, currently at around €3.2 billion, in Europe, with Spain and Italy the main targets. Blackstone is looking at Spain’s higher risk assets for its $7.1 billion BREP Europe V megafund.
Both of these markets, however, currently face a supply-demand imbalance, with demand prevailing. Although core buyers are increasingly targeting Spain – with capital piling in particularly from Germany and the US – finding and then acquiring the right assets is not easy.
The opposite end of the risk spectrum also has a limited number of assets. Some market observers posit that opportunistic institutional investors now must assume more risk or do development because of the lack of existing product.
Indeed, searching for either strong core or opportunistic plays in Spain at the moment may seem akin to looking for a needle in a haystack. But given the turbulence elsewhere in Europe, Spain is one place where investors increasingly and evidently want to be.