Logistics and Living, the real estate segments that have aroused the most interest among investors this year, are the ones that will see the greatest revaluation of their assets by the end of 2022, along with the stabilisation of residential land, which is recovering value and is positive compared to the end of 2019. The rest of the sectors are affected by the current macroeconomic situation, with Retail and Offices being the most devalued. These are the main conclusions drawn from the data collected and analysed by the Valuation & Advisory Services area of CBRE, in the second edition of its Valuation Market Trends report, which includes the assessment and forecast of its experts on the range of value dispersion of both traditional property sectors and operational or alternative assets.
"The levels of inflation expected in 2022, rising commodity prices, the supply chain situation and geopolitical tensions have caused a sharp slowdown in the dynamics of the transaction market. These effects have been most pronounced during the second part of 2022, with a consequent upward revision of required risk rates. All of this is causing real estate asset valuations to suffer and begin to reflect declines in capital values, a trend that will continue into early 2023," said Fernando Fuente, Senior Director of Valuation & Advisory Services at CBRE.
Logistics: oblivious to the uncertainty of the environment
The increase in industrial production and foreign trade has meant that the logistics market has remained unaffected by the increased uncertainty in the macroeconomic environment. At this moment and even suffering in the second half of the year the effects of the decompression of the minimum required returns (+75 bps), logistics assets could close 2022 with a positive annual revaluation of 3.20%. The cities with the highest revaluation of their assets were: Barcelona with an increase of 3.24%; Madrid, with 3.17%; and Zaragoza, with an increase of 0.95% in the value of these assets.
"The high investment of 2,058 million euros, the contracting of two million square metres in the first three quarters, the high demand for contracting logistics space, and the expectation of rental growth will cushion the effect of rising yields in the logistics sector, which remains the most resilient in Spain in 2022," says Fuente.
Living and land: consolidation and resilience
The Residential rented product has continued its consolidation and leadership process despite the inflationary environment, and while the second half of the year saw a negative adjustment of -4.50% due to the increase in yields (+50 bps), the year is expected to end with a higher appreciation of 2.61% compared to 2021. The shortage of product and high demand make the Private Rented Sector segment one of the most resilient in the market.
The evolution of the land market has remained stable this year, recovering pre-pandemic levels, even surpassing them in some cases, due to the scarcity of land and high demand. According to CBRE, the residential market could close the year with a revaluation of 2.1% and 2% in the cities of Barcelona and Madrid respectively. "The boom in the logistics sector has undoubtedly produced a positive adjustment in market rents and the shortage of supply in the main provincial capitals has led investors to focus their attention on their metropolitan areas. In the case of Madrid, its metropolitan area will end up with a value 3% higher than in 2021, while in Barcelona it will be 3.20%," says Fuente.
Behind the main capitals, it is worth highlighting the evolution of residential land on the Costa del Sol, with a 7% increase in value, mainly due to the sustained high demand from foreign investors for luxury residential or branded residential developments.
The areas of the Cantabrian Arc also recorded positive figures, with a revaluation of 2.50% and the Levante area with a gain of 3%.
Retail and Offices: the assets with the greatest downward adjustment in their valuations in 2022
According to CBRE's forecasts, the greatest adjustment within the Shopping Centre segment will be suffered by secondary shopping centres, which could reach a deterioration of -9% by the end of the year. Prime shopping centres and medium-sized parks will suffer a smaller adjustment, which could reach -5.37% and -1.35%, respectively. As for dominant regional shopping centres, a negative adjustment of -5.72% is expected.
Still far from pre-pandemic levels, High Street assets are expected to close the year with adjustments of -4.10% in Madrid and -3.90% in Barcelona. "The growth in interest rates is negatively affecting financing conditions, which means that the investment market is not contemplating High Street transactions that do not ensure a minimum return of 4%. Even so, prime assets are consolidating their position as a safe haven for investors who do not depend on external financing", explains Fuente.
As for offices, CBRE highlights the polarity of the sector. Properties in prime areas of Madrid and Barcelona are expected to adjust by -1.41%, while in central secondary areas they will adjust by -5.09%, and finally in peripheral areas by -9.01%. "A polarisation can be seen between those assets in good locations, refurbished or newly built and with certifications that accredit their sustainability and those that do not comply with these characteristics, as shown by the vacancy rate for Grade A buildings, which is between 2% and 3% in Madrid and Barcelona, respectively," argues Fuente.
The hotel sector has undergone notable changes this year, due to positive demand levels during the second and third quarters, compared to the previous two years of restrictions. Even so, asset values are expected to adjust by -6.18% compared to the previous year. "CBRE has observed that many transactions have been cancelled or simply delayed, although it is predictable that we will see price corrections in the last months of the year. Even so, we cannot ignore the fact that there is still a lot of liquidity in the market and the Spanish hotel segment is considered a safe haven," confirms Fuente.
Rising value of alternative assets
Student and senior residences continue to prove to be resilient products with increasingly solid fundamentals that bring them closer to the traditional segment. Forecasts for the end of this year point to an adjustment of around -0.40% for both segments.
