The investment activity registered in the real estate sector in Spain in the second quarter of the year has been positive, despite all the uncertainties existing. This is demonstrated by the latest real estate investment report carried out by the real estate consultancy BNP Paribas Real Estate, in which the figures point out that the market is in a unique situation, from the point of view of the offer and existing investment opportunities in all segments.
There are currently a large number of sales processes in the negotiation phase, many of them of great volume, which predict that the year 2022 could mark a new record for investment in real estate in Spain.
At this point, the real estate consultancy detects in its report that the volume of direct investment made in office, retail, logistics, hotel, residential rental and alternative assets in the second quarter of the year stood at 4,580 million euros. This is the highest quarterly investment volume in the entire historical series, registering an increase of 24% compared to the previous quarter and 55% compared to the same period in 2021. It should be noted that one operation has represented 42% of the total, the repurchase by BBVA of 659 bank branches for an approximate amount of 1,987 million euros.
“The expectations for the rest of 2022 are positive, despite the existing uncertainties, which have caused some investors to temporarily postpone their decision-making, until they have a clearer macro vision of the trend for the second part of the year” confirms Borja Ortega, CEO of BNP Paribas Real Estate. Thus, he adds that "the high volatility of other variable investment alternatives, the high capital available to invest in real estate and the existing supply in the market, makes us think that in the year as a whole, investment exceeds the previous market peak, recorded in the year 2019”.
The living sector leads investment at a semi-annual level, with the residential segment in the lead
With the initial impact of the pandemic on the real estate sector behind us, activity has been dynamic in recent quarters in the different real estate sectors. If the investment in the first half of the year is analyzed, the accumulated volume reaches 8,245 million euros, a figure that represents an increase of 68% compared to 2021.
From April 1, 2020 to July 1, 2022, investment operations have been carried out for an approximate volume of 25,512 million euros. The retail sector has been the one that has concentrated the most invested capital, with 22% of the total in the mentioned period (Q2 2020—Q2 2022). Despite the increase in activity registered in this segment, the high volume of the repurchase, by BBVA, of 659 bank branches (1,987 million euros), positions the retail sector as the segment that has channeled the most volume.
If this operation is not taken into account, it can be seen how the office, logistics, hotel and residential sectors are at the top, in that order.
If the investment in the second quarter of 2022 is analyzed, it can be seen how, likewise, the Retail sector has channeled a large part of the registered investment (55%). In addition to the previously mentioned operation of BBVA, the investment activity registered in retail has been very high. The type of hypermarkets and supermarkets continues to be very attractive for investors, one of the most notable operations being the purchase by the MDSR fund of a portfolio of five Carrefour centers in Spain for an approximate volume of 156 million euros. In the type of street premises (High Street) the activity has been increasing notably in recent months, bringing together 50% of the operations of the retail sector in the second quarter. The recent acquisition of premises located on Calle Ortega y Gasset in Madrid for an approximate volume of 20 million euros, occupied by an exclusive fashion firm, stands out. Likewise, the typology of shopping centers is back on the investors' radar, with several operations having been recorded in the last three months. Also worth mentioning is the recent purchase of the Finistrelles shopping center by the French group Frey, for a volume of 127.5 million euros, and the acquisition of the La Rosaleda shopping center in Malaga, for an amount of 24.6 million euros.
The residential sector has brought together 16% of the volume of investment in the second quarter, which represents an amount invested of 730 million euros. The strength of demand and the potential offered by this sector in Spain continue to drive investors to this sector. The most relevant operations have been the purchase by AXA of six rental developments, located in good locations in the city of Madrid and its metropolitan area. Also noteworthy is the recent acquisition by the American fund Greystar of 2,500 service apartments, located in Valdebebas, San Sebastián de los Reyes Rivas Vaciamadrid, all of them in the Madrid region, in addition to the acquisition by the German manager Catella AM of 281 BTR homes in Valencia for a volume of 66 million euros. In the accumulated figure for the year, investment rose to 1,710 million euros, 92% more than the same period in 2021.
The office sector continues to confirm the progression seen in 2021 and has closed the first half of the year with a volume of investment similar to that registered before the pandemic, with a total of 1,265 million euros invested. This figure represents an increase of 31% compared to 2021. In the second quarter of the year, the investment volume stood at 482 million euros. Unlike the previous year, the Madrid market remains the most dynamic in 2022, accounting for 50% of the semi-annual investment.
The most notable operations have been the recent purchase of the Arnaiz headquarters in Méndez Álvaro (Madrid) for an approximate volume of 34 million euros or the sale of a building located in Alcobendas (Arroyo de la Vega) to a French fund. The Catalan office market continues to be very attractive for investors, totaling 166 million euros in the second quarter, with the 22@ area representing 70% of the investment. The most relevant operation, by volume, has been the Henkel headquarters in 22@ for an amount of 60 million euros and the purchase by Generali of the Payfit headquarters, also in 22@ for an approximate volume of 35 million euros.
The volume of hotel investment increases by 125% in the first semester
Investors and investment funds continue to acquire hotel complexes in Spain, aware of the recovery of this sector and the attractiveness of the Spanish market for national and international tourism. The investment registered in the second quarter of the year was close to 438 million euros, a figure that represents an increase of 26% compared to the same period last year. The accumulated figure for the first semester reached 1,290 million euros, reflecting an annual increase of 125%. If demand is analyzed from the point of view of location, it can be seen how Madrid, Mallorca, Catalonia and Andalusia continue to be the most popular markets. The average price of the operations registered in the analyzed period is in the range of between 45-55 million euros. One of the most notable operations in terms of investment volume has been the purchase, by Round Hill, of the Hotel Florida Norte, in Madrid, which currently has 400 rooms. Also noteworthy is the acquisition by Brookfield of the Princess Triangle in Madrid, with a 4-star hotel with 423 rooms.
Within the type of alternative assets, different operations were signed in the second quarter for a volume of 257 million euros, a figure very similar to that registered in the same period of 2021. In total, the accumulated investment in the first half of the year reached 612 million euros, 37% higher than that registered in the first six months of 2021. The most demanded types of assets, within this category of assets, continue to be student residences, which have represented 40% of registered operations, senior housing (40%) of operations) and clinics, laboratories and medical centers, totaling the remaining 20% of transactions between the three. Within the type of student residences, the locations preferred by investors have been Barcelona, Madrid and Seville, the most outstanding operation being the purchase of a portfolio of two residences.
The Student Hotel in Barcelona for an approximate amount of 110 million euros. In the typology of residences for the elderly, the geographical diversity registered in the last three months stands out. Locations such as Benidorm, Gijón, Vigo or Madrid, among others, have been targeted by buyers.
Finally, the volume of investment registered in the logistics sector has not been as high as that registered in 2021. This is mainly due to the absence of the closing of operations and/or large-volume portfolios. A lot of capital raised to invest in logistics assets continues to appreciate, in some cases coming from funds or investors who were left out of the sale processes closed in the last quarter of 2021 or the first quarter of 2022. During the second quarter of the year Investment operations have been closed for a volume of 165 million euros, while, in the accumulated of the first semester, this volume rises to 550 million euros. This figure reflects an adjustment of 61%, mainly due to the high volume of the Montepino/Bankinter operation registered in Q2 2021. If this operation were not taken into account, the investment levels in 2022 would be very similar to those registered in Q2 2021. first half of 2022, 2.1% lower. The most notable operations in the last quarter have been the purchase of a European logistics portfolio, with six assets in Spain for a volume of approximately 73 million euros and the recent acquisition of the logistics platform that Conforma occupies in Llíria (Valencia), for 65 millions of euros. Looking ahead to the rest of the year, a significant increase in activity is expected, due to several sales processes that are currently in the very advanced stage of negotiations, some of them of considerable volumes.
Institutional investment funds continue to rule the real estate market
If the type of investor is analyzed, it can be seen how institutional investment funds continue to dominate the market, representing half of the total volume accounted for in the first half of 2022, with a 50% share. During the second quarter of the year, large international investment funds such as GreyStar with the acquisition of 2,500 homes for BTR, Brookfield with the purchase of the Princess Triangle or the Carrefour portfolio by MSDR.
If the origin of the investors is analyzed, it is observed how during the first half of the year the national investor monopolizes almost half of the capital invested in Real Estate with a share of 45% of the volume of investment in the middle of the year. The volume of national investment exceeds 3,600 million euros, already being 95% of the volume for all of 2021.
Even excluding the BBVA operation, the local investor would stand out above the rest. In addition, the trust placed in the market by German investment funds with an 18% share and exceeding practically all the capital invested in the global of the year 2021, with more than 1,400 million euros, stands out.
The type of asset preferred by German capital during the first half of 2022 is the Living sector, which occupies 65% of its investments. French and North American investors continue to trust the Spanish market, with a market share between them of 30% of the investment in the first half of the year.
It is also worth highlighting the figure of the Private Investor during the first half of the year. The volume transacted by this type of Capital has already reached almost 1,000 million euros, 20% above the total private investment in 2021. The preferred assets for this type are offices and PRS Residential.
Turning point in returns
The current context in which we find ourselves, with an imminent rise in interest rates, the increase in the yields of Spanish and German 10-year bonds and less favorable financing conditions, invite us to think of a change in the trend of the returns. During the last three months there have been minimal decompressions in Prime yields. In a context such as the current one, it is observed how the CORE criteria (more risk-averse investors) are being valued again, which during the last 2/3 years had been undervalued. In this sense, we believe that in the coming months the market will become polarized in almost all segments and the expected increase in returns will be much lower in Prime assets that meet the criteria of location, quality of the property and long-term contracts. .
