For some time now, there is not a month in which all the agents involved in the real estate sector stop looking at the evolution of interest rates. Agencies, investment funds, construction companies, real estate companies, homeowners, tenants looking to buy.... All have been marked by a variable and upward trend that, in one way or another, can condition buying or selling decisions. And in the background, two questions: "Are interest rates going to fall? And, regardless of whether they do or not, in what moment is the sector?
To answer these questions, the new edition of the Iberian Reit & Listed Conference, an event organized by the European Public Real Estate Association (EPRA) and Iberian Property will bring together the sector's leading investors and professionals at the Villa Magna hotel. Luigi Speranza, chief economist at BNP Paribas and special guest at this event, together with Ismael Clemente, Pere Viñolas, Miguel Pereda, and David Martínez, CEOs of the largest Spanish socimis, will explore how high interest rates affect the European economy and, by extension, the Iberian real estate sector.
A second panel of experts will analyse the returns offered by investment in the listed real estate sector. On the other hand, IBM will show the influence that generative artificial intelligence will have on our society.
Finally, and through different experts, the attendees to the event, who can register at the official website, will understand how technological evolution and digitalization affect the real estate sector and how investors have to adapt and react to these changes.
Ten years of the REIT regime in Spain
The celebration of the event coincides with the tenth anniversary of the entry into force of the Real Estate Investment Trust (REIT) scheme in Spain. This initiative was intended to offer a special tax regime to companies acquiring and developing real estate for lease provided that they met requirements such as, for example, the distribution via dividends of 80% of the profits and 50% of the capital gains from sales, a minimum capital of 5 million euros and a listing on a regulated market, among others.
Over the last 10 years, these vehicles, known in Spain as listed real estate investment trusts (socimis), have contributed around 15% of the GDP of the services sector in Spain and 10% of total GDP, with a Gross Value Added (GVA) of close to 32.32 billion quarterly, according to Iberian Property.
Socimis have contributed 15% of the services sector GDP and 10% of the total GDP, with a quarterly GVA of 32 billion euros
Companies have entered both the primary and secondary markets. Merlin Properties and Colonial, for example, are listed on the Ibex 35, while others such as Lar España or Árima RE are listed on the continuous market. In addition, 80 companies are listed on the BME Growth, the former alternative market of the Spanish stock exchange, and another 30 companies of Spanish origin are listed on the Euronext Access in Paris.
Of the ten new socimis incorporated in Spain in 2022, five are listed on BME Growth and another five on Euronext Access. These 10 real estate companies had a total asset value of 1,523 million euros at the time of their stock market debut. In total, the stock market value of all Spanish socimis exceeds €25 billion.
Asset rotation strategy in 2023
These companies have carried out a remarkable divestment during the first ten months of 2023. At the end of October, sales had already exceeded €1 billion in 22 transactions. In this case, offices again accounted for the largest share of the divestment, 70%.
The three main sales recorded by socimis in Spain up to the end of October were the sale of 70 office properties in Andalusia by WP Carey (US REIT) for €328 million; the sale of three office buildings in Madrid by Colonial for €300 million; and the sale of two retail parks in Madrid and Alicante by Lar España for €129 million. In all cases, the sale values were higher than the purchase values.
Sales in 2023 exceeded €1 billion in 22 transactions
The main Spanish socimis are performing well in terms of rents and occupancy, according to Iberian Property. From this point of view, inflation is having a greater impact on rental income than on operating costs. Forecasts point to a return of investors to the REIT sector in 2024, when the economy starts to grow again.
Behind this theory is the heavy discount at which the main European REITs are trading, which on average exceeds 40% of their net asset value. In other words, their market capitalization is well below the value of their portfolios and there is a disconnection between share prices and operating results.