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Real estate investment in Spain provided 8.7% returns in 2019
22 April 2020 | Susana Correia

Spanish commercial real estate investment provided 8.7% returns to investors, according to MSCI Real Estate Index, which confirms the growing attractiveness of the Iberian market.

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This result places Spain amongst the most profitable real estate markets for investors, with the country surpassing in almost 2% the average European returns of 6.8% as shown in MSCI’s Pan-European Real Estate Index last year.

«In 2019 some global markets decelerated, but Spain remains positioned amongst the countries with the best performance», remarked Luís Francisco, Vice-President Client Coverage at MSCI, who presented these results first hand in an online session that took place this Tuesday morning. Reversing the trend showed the previous year, the growth component gained relevance once again in 2019, contributing around 4.3% for the index’s results, whereas the income return component contributed 4.2%.

«In 2019, assets benefitted from the double impact of yield compression and rent growth», highlighted Luís Francisco, adding that «unlike what happened in 2017/18, when the rents had a greater impact in terms of asset valuation in Spain, last year the yields were the main responsible for valuation».

Celebrating its 20th anniversary, MSCI’s Real Estate Index monitors the Spanish market since 2000 and, the historic of these two last decades confirms the resilience and high performance of commercial real estate as a long-term investment class, remarked Luís Francisco. Thus, through the last 19 years, real estate provided total annual returns of 7.4% in Spain, surpassing both equities (4.0%) and bonds (6.2%). In terms of risk-adjusted returns also confirmed real estate’s high performance as an investment class: 1.1%, against 0.2% from equities and 1.0% from bonds.

MSCI also «assesses» the performance of non-operating investments, that is, traded or under development assets which once again provided very attractive returns for their owners: 11.7%.

Corresponding to a 19.2 billion euro valuation, the portfolio monitored by MSCI in Spain grew around 15% yoy in 2019, consisting of 51 portfolios with a total 490 assets, of which the majority are office assets (49%), followed by retail (28%), industrial (13%) and housing (6%). Hotels and other segments have a residual share, 2% each, in this sample.

Industrial is the investment market’s star segment

The industrial and logistic segments stood out as the most profitable for real estate investors in 2019, providing 15% returns compared to 11.6% provided in 2018. Amongst these, the top performers were the assets located in Catalonia (18.3%) which had a better performance than those located in Madrid (14.7%), with these two segments improving their performance yoy (15.2% and 10.1% respectively), unlike what happened with the assets located in the rest of Spain – 8.6% in 2019 vs 9.4% in 2018.

«In line with the international trend, these good performances from the Spanish industrial and logistic sectors place this Iberian market in the top 5 countries with the best performance in these segments», highlighted Luís Francisco.

Offices came in second in terms of most profitable assets in 2019: 10.5%, showing some stabilization when compared to the 10.4% of 2018. Here, as in the industry segment, the yields’ compression was the main component in terms of asset valuation, he noted; adding that Spain also stood out in this area with one of the best results in Europe. Once again, «Barcelona had a very positive performance in this segment», but also in others, since «practically all office segments are already showing valuations above the 2008 crisis, providing two-digit returns», added MSCI’s Vice-President for Client Coverage.

The same cannot be said concerning retail, whose total return did not surpass 3.5% in Spain last year, when compared to the 6.1% of 2018 and «reflecting a global trend in terms of values for the retail segment», remarked Luís Francisco, adding that in the Spanish case «that break was evident in terms of retail parks, and was also possibly boosted by a yield expansion stage». Despite there being a «general break on all retail segments, there were different behaviours amongst the several segments which were monitored, showing a clear distinction between prime and non-prime products, especially in terms of shopping centres; but we should also understand why other types of commercial assets, such as supermarkets, are attracting investors as opposed to, for example, retail parks». In this field, the large shopping centres provided 4.5% returns in 2019, whereas mid-sized shopping centres only provided returns of 0.1%. Supermarkets were the most profitable retail subclass in 2019, with a 5.2% return (vs 2018’s 7.0% return), followed by «other retail» and «high-street retail» with returns of 3.8% and 3.7%, respectively.