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Investment converges towards core assets
13 May 2020 |

Contrary to all expectations drawn at the beginning of the year, 2020 will be a stagnant year for real estate investment in Iberia. And, at this stage, only the core assets seem to be part of investors’ plans for Spain and Portugal.

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Or, at least that is the dominant sentiment amongst the participants of the seminar «Mercado de investimento - na senda da nova normalidade (Investment Market – on the path of the new normality)», organised by Savills Portugal on the afternoon of the 11th of May, which gathered online Ismael Clemente, Merlin Properties’ CEO, Alejandro Moya, partner at Incus Capital, Miguel Santana, Board Member at Fidelidade Property and Victor Freitas Duarte, Director of New Investment Vehicles at Sonae Sierra.

Despite having different perspectives on how to recover from the current crisis, all these investors agreed that in the post-covid their strategies will converge towards core assets. «We have a very flexible strategy, because we look at each investor and at each opportunity individually, and that is what we will keep doing. But it is unquestionable that right now we prefer to focus on assets with better quality, even with higher leverage, because these assets will be the first to dominate and recover when the economy recovers», stated Alejandro Moya.

In the same way, they do not anticipate great changes concerning the mid-term investment strategies, for now, recalling that although fewer transactions are expected for the coming months, that is due to a waiting moment while investors try to understand how the crisis will evolve and when it will end; since «there is still great liquidity in the market» and «real estate is far from being one of the worst types of assets for investors to take refuge in», said jokingly the Merlin Properties’ CEO.

Offices and logistics concentrate Merlin’s plans

Talking about the largest Spanish REIT’s plans, Ismael Clemente explained that in terms of the office segment «a large part of our investment will continue to be directed towards our asset revaluation plan, so as to maximise the potential of the buildings we have in core locations adding value accordingly». Logistics is another of Merlin’s great bets, which at this stage should invest «mainly in green-field built-to core projects», that is, «at the right time we had the opportunity to acquire terrains in very good locations at very competitive prices, something that we would not be able to do now; and we will now invest in their development». A positioning which is mainly connected to the lack of modern and quality offer, causing a great gap between offer and demand for this type of product. «Currently around 12% of our revenue comes from logistics, but the goal is to rise its weight to 20% when the projects we are currently developing are operational», advanced Clemente.  The future logistic platform Lisboa Norte, at the entrance of the Portuguese capital, is one of the largest investments Merlin has already confirmed for this segment.

«The segment where we will probably slowdown will be retail»admitted Merlin’s CEO, explaining that for this segment investment will be mainly directed towards modernising its dominant shopping centres and adapt them to the multichannel transition, since, both in Portugal and Spain «it will not be possible to carry out greenfield projects for very long, at least until the market determines the winners and losers within the shopping centre segment», he considered.

Although housing is a rising segment for real estate investors all over Europe, as was shown by Savills Portugal Research Director, Alexandra Gomes; this segment remains out of Merlin’s plans. «The housing market has an enormous investment potential, but unfortunately the Spanish housing segment, and in particular the rental segment, is still not very rational and very emotional; and that is not interesting for us».

«We are core investors by definition. And as such, if we are to make acquisitions, it will always be for core assets», concluded Ismael Clemente.

The priority is to add value to assets within the portfolio

Sonae Sierra’s great strategic priority is to add value to its own assets, admitted Victor Freitas Duarte. «We will maintain our strategy, which is mainly based on the need to add value to the assets we have on our portfolio», explained the Director of New Investment Vehicles. The construction of a third business tower in the Colombo shopping centre, in Lisbon, the expansion of Norte Shopping, in Matosinhos, or the creation of an outlet anchored to the Plaza Mayor shopping centre, in Spain, are only a few of Sonae Sierra’s new projects. «We believe in dominant shopping centres, and we want, in this way, to make them even more dominant», he said.

Deep down, «we privilege core and will continue to do so. And as such we will continue repositioning our portfolio», stated Victor Freitas Duarte, adding that «investing in core assets and segments always make sense at any moment within the cycle. But cycles change and so do their dynamics, so it is possible that at this stage opportunities will appear with more attractive conditions than a few months ago due to the strong competition in terms of prices». For him, « long-income is, right now, a priority type of investment».

«We will proceed with our goal of creating a new CBD in Lisbon»

Offices are also a priority for Fidelidade Property. «Basically, we will maintain our investment policy», stated Miguel Santana, adding that «we will proceed with the Entrecampos project and our goal of creating a new CBD in Lisbon». Having invested 274 million euro in the purchase of those terrains, Fidelidade will use them to lead the largest urban development carried out within the Portuguese capital since Expo98, featuring several office buildings, but also housing and commerce. «We will manage to adjust our project to what the market will dictate», stated the company’s administrator, confident that «the need for offices will never disappear. Covid-19 accelerated a series of trends amongst which remote work which, without a doubt, will become more relevant in the future; but it also brought new requirements and demands concerning sanitary safety, besides environmental issues, so that if on the one hand it is true that there will be fewer people gathered at a time in the offices, on the other hand, space quality demands will increase and the ratio of workers per area will decrease», he forecasted. Greater challenges are expected for retail which, he considered, «will have to reinvent itself», since «the pandemic dictated the acceleration of online consumption and that is unstoppable».

Fidelidade’s plans for the long-term might include logistics, he admitted, taking into account that «we own some assets located on the outskirts of Lisbon which we would like to reposition, adapting them to the latent demand».