This is one of the principal conclusions of the latest Iberian Commercial Property Monitor (ICPM), regarding the 2nd quarter of 2018, produced by RICS- Royal Institution of Chartered Surveyors in partnership with Iberian Property. Taking the pulse of the commercial real estate market, based on dozens of surveys answered by professionals in the sector in Spain and Portugal, the latest edition of this barometer shows that forecasts keep indicating growth on both sides of the border.
The Spanish market is undergoing renewed vigour, with the activity in capital markets growing stronger throughout the quarter in question, supported by an increase in demand and sustaining an upward revision of expectations for asset appreciation. This scenario is based on the solidity of the Spanish economy that, unlike the trend observed in the Euro zone, continued to accelerate in the first semester. The steady rise in employment continues to fuel demand for spaces to take up, sustaining solid growth prospects for all commercial market segments over upcoming months.
Both in terms of take-up and investors, the demand for commercial property also continued to rise in Portugal throughout the 2nd quarter. And, despite slowing down slightly compared with last year, economic growth remains and unemployment is expected to keep diminishing, driven by consumption. The positive effects of this scenario are especially evident in retail, which attracts healthy interest from foreign investors. And forecasts indicate that both rents and asset values should keep rising firmly in the Portuguese market over the next 12 months.
Investors have renewed confidence
The ICPM reveals a new boost in investor sentiment towards the Spanish market, with investment intentions rising steadily in every sector in the 2nd quarter, even more so in industrial assets. The period in question also presented an evident increase in interest from foreign investors in the Spanish market across every subsector.
The supply of assets for sale remained stable in Spain for the fourth consecutive quarter, although there was a slight decrease in the number of retail assets available for investment. At the same time, forecasts for short term appreciation also rose somewhat, driven above all by an improvement in the office sector. Compared with the results of the previous survey, the forecasts provided by respondents regarding the evolution of asset values over the next twelve months also improved in every sector, with prime offices earning the highest projections. Prime office and retail assets in Madrid are expected to appreciate above the national average.
In Portugal, the Investment Sentiment Index reached the highest level of the past 15 quarters, with investment intentions rising equally on all fronts throughout the quarter. Interest in the Portuguese market from foreign buyers also remained on the rise, with retail assets attracting the most attention.
The supply of assets for sale in the Portuguese market continued to diminish for the fourth consecutive quarter, with offices displaying the most significant drop. Projections for asset appreciation over the next twelve months were revised upwards throughout the quarter and, although this trend is common to all market areas, growth should be most evident in prime offices and retail.
Approximately three quarters of the participants in this survey feel that commercial real estate prices in Spain are currently at their fair value or below, and 55% believes the market is in the middle of a recovery cycle. In Portugal, after the strong price appreciation observed in the last quarters, 47% of those surveyed consider that, in some instances, assets are slightly above their fair value. 48% believe that the Portuguese market is about to reach the peak of the current cycle, although almost everyone surveyed defends that recovery is still mid-cycle.
Momentum remains in the occupier market
Momentum remains in the Spanish occupier market, with demand for spaces to take up rising once again in every sector in the 2nd quarter, with a particularly strong rise in office and industrial assets. After dropping for 13 quarters, the supply available on the market stabilised in every segment.
While landlords reduced the value of incentive packages granted in the office and retail segments, prospects for rent increases next year also improved substantially, currently standing at the highest level of the past five quarters. Although rents are expected to rise in every sector, this should be most evident in offices and industrial.
The survey also reveals good prospects for take-up in the Portuguese market, where demand for space increased once again in the 2nd quarter, in an impulse led by offices and followed by retail, with a more modest rise in industrial. The supply of spaces for rental diminished once again in every segment except retail, which remained unchanged.
Landlords also decreased even further the value of incentive packages granted to tenants in Portugal, a trend that was especially evident in offices. In addition, there was a clear improvement in expectations among respondents regarding rent growth prospects for the next 12 months in every sector. Nonetheless, the greatest increases are expected in prime retail product, which should surpass all other subsectors in Portugal, followed by prime offices.
Check the latest Commercial Property Monitors for Portugal and Spain here!