The real estate market in Spain: is there an opportunity in the Ibex 35?
According to data from the world’s largest real estate investment consultancy and manager, CBRE, investment in this sector in Spain during the first quarter of 2021 was around 1,600 million euros, 60% less than in the same period of 2020, when it registered the record number of almost 4,000 million. Between April 2020 and 2021, the investment volume has reached 7,200 million, 50% less than in the previous 12 months, although they are figures that double and even almost triple those reached at the start of every year between 2010 and 2013.
Considered as a new refuge sector, for some, and with overvalued recovery prospects, for others, the truth is that investment in the real estate sector has become conditioned by the change in the paradigm of housing preferences as a result of the coronavirus.
“The excess liquidity in the markets and the very low interest rates are leading large investors such as pension funds or private equities to seek yield in the real estate market, both in traditional safe assets such as prime offices and homes, as well as in alternative assets and innovative such as data centers or student residences ”, he points out. Pablo Fernández, Income 4 analyst.
From ATL CapitalHowever, they are negatively positioned in the sector, although “there are concrete opportunities” and they only recommend it “for large assets”, he remarks. Susana Felpeto, director of equities of the firm.
Expectations regarding prices have not fallen too much. What happens is that “the sector is at a standby point” where logistics is the part that is performing the best, he explains. José Lizán, manager of Magnum Sicav Solventis.
In the heat of the e-commerce push and after the outbreak of the pandemic, the logistics sector has only accelerated the process and positioned itself among the most attractive for all stakeholders. According to the index prepared by CBRE, logistics real estate assets have increased their value by 1.14% compared to the end of 2020, while in the residential rental segment their increase has been 1.03%.
Are there opportunities?
MERLIN Properties (+ 20%) is revalued in the Ibex 35 twice that of Inmobiliaria Colonial (+ 10%) although Lizán thinks that neither of the two is an asset to invest now. “There is an opportunity at Millenium Hotels, a Spanish Socimi that, we know, will try to increase capital to buy hotels.” In addition, by valuation he believes that Realia is “given away at the multiples and ratio level” so putting money there “is not nonsense,” he adds.
In Renta 4, more positive in the sector, they bet on Merlin over Colonial “because of its greater cyclical exposure and the high discount on NAV (net asset value)” as in ATL -although they are negative in both companies- they opted for Merlin Properties that inaugurated ‘Lisboa Park’ last month, a logistics park that already has a state-of-the-art warehouse with 45,171 m2 of gross leasable area, according to the Socimi in a press release.
As for the hotel sector, one of the hardest hit by the pandemic after the drop in occupancy, Solventis underlines that “we will have two years with opportunities in this sector and those who position themselves well now will be the long-term winners.” Although coastal tourism will show signs of reactivation this summer, they will not be noticeable until next time.
Within the continuous market, despite the dividend cut, Lar Spain continues to be the most attractive security from the point of view of shareholder remuneration, with a return of more than 6.5% between ordinary and extraordinary, points out Pablo Fernández, although “the market may take longer to recognize it due to the structural trends of the sector,” he clarifies. In this sense, all Socimis have to pay by law 80% of their profit in dividends so, due to the decrease in income, “it is not a good time as an investment thesis,” they point out from Solventis.
From Renta 4 they look with optimism towards the build to rent “due to its good performance in absolute terms” and also to the offices in the heat of a “gradual recovery of activity for the second half of the year”. However, Lizán thinks that, along with shopping centers, the office subsector is one of those that “presents the most doubts.”
Regarding retail investment in Spain during the first quarter, some data. The figure reached around 100 million euros, representing a 20% drop compared to the fourth quarter of 2020 and -80% compared to the first quarter of the previous year, “although the latter was inflated by large extraordinary operations”, They point from Rent 4.
“The supply of home ownership is very limited and the sector would have to change a lot for it to reactivate”, emphasizes José Lizán. The residential real estate sector in our country is moving towards a world of rental housing and progressively leaves behind the idiosyncrasy of the Spanish homeowner, compared to the European model.
Regarding geographical areas, the Mediterranean coast and the islands continue to be the favorite markets for foreign investors in residential areas, while “the periphery of the main cities is attracting a lot of attention in sectors such as logistics,” explains Pablo Fernández.
For her part, Lizán says that “investment appetite” continues to be seen in prime areas such as the Balearic Islands, Malaga, Sotogrande (in the Gibraltar area) and, of course, Madrid.
In general, for the rest of the year, a recovery in investment levels could be expected “although probably still far from the record levels of 2019 and the first quarter of 2020”, according to Renta 4, who expect that the bulk of the recovery is in the second part of 2021.
Susana Felpeto highlights that asset prices have not fallen too much and what is expected “is that there will be a correction at the end of the year or next year.” Regarding inflation, “we think that the rebound is due to the comparison but what is expected is that it is not strong, although in this case, if the rates rise, the mortgages associated with the Euribor would increase the cost”, he adds.
Regarding the reduction of home ownership, “it is very likely that we will see a real estate construction boom in the next five or 7 years focused on rent that should ease prices in the center of large cities,” concludes Lizán.