Spanish property market will see an upturn this year

Posted on April 19th, 2012 in Real Estate in Spain by author

Commenting on the real estate trends of 2012, CBRE’s president Mr Eduardo Fernandez-Cuesta expressed his organisation’s views that transactions for the property market this year will show an increase compared to 2011, but warned that home values would continue to undergo a downward price adjustment.

The CBRE president made his predictions during a presentation on trends in Spain’s real estate market and said that the most sales transactions currently being registered were those for properties with price tags of between €100,000 and €120,000, where 100% finance packages were offered as part of the deal.

Basing his comments on his company’s survey of 200 industry professionals, Mr Fernandez-Cuesta added that 90% of those questioned predicted sales prices for residential properties would decline further, however, the same experts stated that Madrid and Barcelona had pretty much reached their bottom level in the current price adjustment.

Discussing the individual segments of the residential sector, the survey showed that new housing developments would continue to suffer, while refurbished existing homes and the rent-to-buy sectors would fare much better this year.

CBRE’s president highlighted the need for a recovery of the property market to take place soon, as banks and other financial institutions needed to tidy their balance sheets and rid themselves of unsold assets.

He added that public spending cuts in the light of the Government’s austerity measures would have an impact on the management of civic property assets used for administrative purposes. Adolfo Ramirez-Escudero, CEO and consultant of the company, explained this point further. Of the 200 industry professionals questioned, 95 % stated that such municipal bodies are not making the most of their real estate assets.

The survey showed that 91.8% of property experts estimate financial institutions are also not making the most of the property assets in their possession, while 60% of experts believe that banks will add to their real estate portfolios this year rather than divest of housing stock.

Seen on a business by business sector basis, experts believe that the office market will attract more investment than the retail sector, closely matched by the residential and industrial real estate sectors.

Looking more closely at the subject of investment, the study suggests that 53% of experts questioned believe the opportunistic funds market will be looking to invest more on a higher returns basis, with the remainder coming from private investors (20%) and institutional investors (13%).

The survey also revealed that the predictions for real estate organisations outside of Spain included an upturn for hotels with the fastest growth predictions and the office market as the most likely to be of increased interest to overseas investors.

El Economista reported that the survey further revealed an upturn of the real estate market would go hand in glove with a reduction of unsold real estate currently on the market. Some 50% of experts questioned believe that this year far more properties will be sold than last year, predicting that this would affect all sectors with the exception of the logistics real estate market.


Newly built homes’ values to fall further this year

Posted on April 19th, 2012 in Real Estate in Spain by author reported that the Spanish government predicts the asking prices for newly built homes will fall further in 2012, bearing in mind that nearly 65% of all housing surplus is located at the Spanish costas. The lack of available credit and stagnant labour market has made it more difficult to reduce the number of empty new homes on the market.

The most dramatic price adjustment will be reserved for the 800,000 purpose built holiday and second homes, which are mainly located at the Mediterranean coast.

A recently published study conducted by Cataluña Caixa suggests that two thirds of unsold, and seemingly unwanted housing stock were constructed in coastal areas, ore more precisely, some 65% of such homes were built in Andalusia, the Balearic Islands, Catalonia,  Murcia and Valencia.

The latter is the worst affected region with nearly 210,000 unsold homes still on the market at the end of September 2011, which reflects 25.6% of the total unsold housing stock. Seen in combination with 137,000 unsold homes in Murcia and 107,000 unsold properties in Catalonia, this represents a 55.4% share of the overall unsold surplus.

Worrying still, while the overall availability of new housing stock may have reduced down over the past couple of years, in the Basque Country, Catalonia and Valencia more newly built homes have come onto the market.

Seen on a province by province basis, Castellón is showing a volume of almost 114,000 empty homes, whereas Alicante and Barcelona recorded 57,000 unsold newly build homes respectively. Murcia recorded another 52,000 unsold properties and Valencia registered some 40,000 newly build, unsold properties.


Overnight occupancy rates rose by 3.2% this October

Posted on March 2nd, 2012 in Real Estate in Spain by author

Spanish hotel industry counted some 24.7 million overnight stays this October, a healthy 3.2% increase compared year-on-year. While the overnight occupancy rate by residents fell by 9.3%, the rate of overnight stays from non-residents rose by 11.1%, indicating that efforts to improve Spanish tourism industry are beginning to work.

Latest figures published by the National Statistics Institute show that the average stay also went up by 3.5% compared with October last year, when on average guests stayed for about 3 nights in hotels.

According to the figures, 52% of all available hotel beds were occupied in October 2011, representing an increase of 2.2% from the previous year. Indeed, during the first 10 months of 2011, the rate of overnight stays went up by 6.9% compared year-on-year.

The weekend occupancy rate went up by 3.5%, bringing it to an overall 56.3% result.

The changing fortunes of European economies are reflected in the number of visitors that come to Spain. While the German economy is flourishing once more, the number of German guests staying in Spanish hotels went up by 14%; meanwhile, the British market increased by a mere 5.3%. In combination the two countries were responsible for 9 million guests occupying Spanish hotels this October.

Overnight guests from France, Italy and the Netherlands accounted for year-on-year increases of 15.4%, 10.9% and 21.7% respectively.

The Most Popular Destinations in Spain

Like in previous years the Balearic Islands are still firm favourites among non-resident guests. Here overnight stays from overseas visitors increased by 13.2% in October. The Canary Islands are in second place with an increase of 14.0% and Cataluña is in third place with a rise of 5.9%.

Guests who are normally resident in Spain favour Andalusia, Cataluña and the Valencia region, but occupancy rates have gone down compared to the same period last year, namely by -14.5%, -8.9% and by -10.4% respectively, while the Canary Islands had the highest occupancy rates measured in bed places, namely 70.7% of beds were filled with overnight guests in October 2011. In second place Madrid counted an occupancy rate of 58.7% and the Balearics recorded 57.1% occupancy in October 2011.

The islands and costas are still firm favourites with tourists and this was reflected in the occupancy rates and overnight stays. Barcelona recorded the highest occupancy rate by bed places with 72.9% generally and the highest weekend occupancy rate by bed places with 78.7%. Mallorca had 3.8 million overnight bookings in October 2011.

Madrid and Benidorm also recorded high overnight occupancy rates. Arona on Tenerife had the highest occupancy rate by bed places with a staggering 81.5% being filled and Benidorm ranked as the highest weekend occupancy rate holder with 86.8% of bed places being filled.


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Spain’s commercial real estate sector worst for a decade

Posted on March 2nd, 2012 in Real Estate in Spain by author

Data compiled by Savills PLC revealed that in the first 9 months of 2011, 52% less investment has been made in Spain’s commercial real estate sector, with a total of €1.25 billion worth of transactions on retail space in shopping malls, office space, warehouses and hotels taking place.

This means that the commercial real estate sector is currently seeing the lowest level of investment recorded in the last 10 years. It is feared a recovery will be slow in coming, given the financial state of the various Eurozone economies and the lack of credit being available as a result.

In the first ten years of a European single currency, the 10-year Spanish yield lies at 321 basis points above German bunds of a similar maturity, which is a decrease from a single currency peak of 418 basis points recorded on August 5th.

Investors who had been interested in Spain were put off by Spanish banks making it more difficult to get financing and offering borrowing at a higher cost after a flood of bad debt was incurred on property loans. Spain has Europe’s highest rate of unemployment, 21% of Spanish workforce is out of a job. As a result, the country is having difficulties meeting its deficit target of 6% gross of domestic product in 2011, particularly since growth is sluggish and Europe’s sovereign debt is spiralling out of control.

Gema de la Fuente, head of research at Savills’ London-based Spanish business, said that only a huge deal could now prevent 2011 from becoming the worst year with regard to investment levels since 2001.

Alienating Investors

Ismael Clemente, managing director responsible for Spain and Portugal at RREEF, Deutsche Bank AG’s commercial real estate investment division, believes that the pressure on Spanish sovereign debt is putting off investors and profitable property deals that were supposed to take place in 2011 failed, because finance could not be found.

He added that sales of sizeable portfolios of commercial real estate would not increase either until Spanish economy had recovered and banks had sorted out their balance sheets.

Earlier this month CBRE Group Inc. conducted a poll among some 600 property investors, of whom 71% believed that Spanish real estate sector would start showing an improvement in the next 18 months.

Patricio Palomar, head of research at CBRE Spain, commented that the poll’s results were bad news, since investors clearly felt there was not going to be an improvement in the short term.

Ramiro Rodriguez, an analyst with BNP Paribas Real Estate Spain, believes that investment volumes in Spanish real estate sector won’t improve until the country’s economy picks up, which is not expected to happen until 2013 or even 2014. The road to recovery is paved with a number of obstacles that must first be overcome, like the many structural reforms needed, a forecast change in government and the small matter of Spanish banks carrying hundreds of thousands of repossessed properties as assets on their balance sheets.

At present a number of large deals are simply hanging in the air. Property portfolios held by the regional governments of Andalusia and Catalonia with a total value of $1.3 billion as well as real estate assets held by Banco Santander SA fall into the “pending” category. Santander carries at present properties worth a total of €8.3 billion on its balance sheets.

Rental Decline

Data collected by BNP Paribas Real Estate on the rental situation don’t make for any more cheerful reading either. In the second quarter of 2011 Madrid’s vacancy rate for office space stood at 13.4%, while the average rent was down by 3.2% per annum and down by 4.7% compared to the first quarter of 2011.

A square meter of office space in Madrid now stands at €15.30. The prime office market hasn’t fared well either with rents going down by 3.5% for the year, meaning just €27.50 rent per sqm. This represents a fall of 33% from the peak of €41.00 rent per sqm being charged during the second quarter of 2008.

In Spanish second largest city Barcelona, vacancy rates dropped sharply and now stand at 14.4%, while average rents decreased by 3.8% compared year-on-year, meaning that a square meter of Barcelona office space only brings in a rental income of €13.50 in 2011.

Gema de la Fuenta wondered when there was going to be light at the end of the recession tunnel. “Though economic indicators for this year and next are positive, we have already seen them downwardly adjusted as the year progresses,” she said.


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Spain’s high-end property sector hasn’t lost its appeal with investors, yet

Posted on March 1st, 2012 in Real Estate in Spain by author

According to Lucas Fox International Properties, Spain’s luxury property market is doing well, thank you very much!

While generally Spanish property market may suffer from the worldwide recession and an oversupply of middle to low end properties, luxury homes in Ibiza, on the Costa Blanca and in Barcelona have seen a healthy increase in demand during the first 6 months of 2011.

Citing Barcelona as an example, Alex Vaughan, director of Lucas Fox International, explained that an increase in rental returns in the city are imminent, while property values have remained steady despite the general downturn of the economy.

“The lack of quality luxury apartments and houses should mean that prices in this segment of the market will remain stable,” he added. Mr Vaughan is confident that the second half of 2011 should end on a positive sales note for the luxury property market in Ibiza, where home owners might even see capital growth in 2012.

James Dearsley, European sales director for Atlas International, concurred with these findings earlier this month, when he reported that once again investors were looking at the long-term potential for buying overseas properties. Mr Dearsley added, “Investors should consider the “good returns” that can be achieved from both the rental market and future capital gains”.


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