REAL ESTATE INVESTMENT IN IBERIA RIDE THE TIDE OF FINANCIAL TRANSFORMATION

Confirming the European trend, in 2023 the volume of real estate investment also fell in Iberia, going no further than €12 billion. This figure represents a 35% decrease from approximately €18.6 billion traded in 2022, and falls short of the annual average of €14 billion traded in the region in the last five years.

However, and as we show in this magazine Spring edition, this phenomenon is expected to be essentially cyclical. After all, the occupier sectors continue to present robust fundamentals that sustain ongoing investor interest and, once the market has adjusted to the new reality of prices and yields, investment in Iberia is expected to return to the average of recent years.

For now, the forecasts for 2024 are optimistic, suggesting that this may be the first year of recovery!

Between 2019 and 2023, the Iberian Property Data database monitored a total of 1,565 investment transactions concluded in Iberian territory, amounting to €71.7 billion euros. Thus, during this period the average invested in income properties in the Iberian market was €14 billion per year, although the performance in 2023 failed to reach this figure.

Last year, 364 operations were completed in the Iberian Peninsula, of which 284 took place in Spain, amounting to over €10.41 billion, and the remaining 80 in Portugal, totalling €1.63 billion. Aside from reflecting the different sizes of each country, in geographic terms this performance also indicates that the Portuguese market is losing ground in an Iberian scenario. In other words, if in 2019 the Portuguese market accounted for approximately 25% of the total investment in the Peninsula, five years later, the country’s share fell to 14%, displaying a gradual downward trend that became more pronounced after the pandemic.

However, except for 2023, this trend does not represent a substantial decrease in the volumes of capital allocated to Portugal which, incidentally, have grown in most years. Rather, it indicates that capital markets are growing at a faster rate in the Spanish market.

Therefore, if five years ago Spain represented 75% of Iberian real estate investment, last year this percentage increased to 86%, confirming the country’s position as one of the major European capital markets, and probably the most dynamic in southern Europe.

Another trend that has been gaining traction in the last five years is the greater dispersal of capital invested, with secondary cities increasingly appearing on the investor radar, both in Spain and Portugal.

Therefore, while in 2019 the region’s four major cities were the target of 57% of the total investment, five years later they attracted only 34% of the annual volume. The two largest Spanish cities, Madrid and Barcelona, are positioned as the key magnets to attract capital, with the Portuguese capital, Lisbon, taking third position and Porto, the second largest city in Portugal, in last place. Once again, this distribution was confirmed in 2023, although Lisbon lost a significant share compared with the previous years, culminating the downward trend that was observed during the pandemic.

Spain’s secondary cities attracted approximately €6.641 billion in 2023, in other words 55% of the total amount allocated to Iberia. Madrid comes next, with €2.444 billion invested, and Barcelona with €1.328 billion, concentrating 20% and 11% of the annual investment, respectively. One of the surprises in 2023 was Portugal’s secondary cities, which attracted 10% of the capital allocated to the Peninsula last year, namely €1.231 billion. The Portuguese capital, Lisbon, attained no more than €294 million, seeing its share drop to 2% in Iberian terms, while the country’s second largest city, Porto, traded around €106 million, generating a share of just 1%.

Analysing the asset classes that attracted the most capital in the last five years, there is also an evident change in investor preferences in Iberia. Hotels, one of the least dynamic sectors in the past, are today the primary real estate investment target. In contrast, more traditional sectors like offices and, to a lesser degree, retail and logistics, have been losing terrain, while those that attracted smaller shares of capital in the past, such as Multifamily, have been consolidating as an investment class, with the volumes allocated growing every year, currently taking a lead position.

Thus, in 2023 hotels were the absolute leaders, attracting €4.553 billion to the Iberian Peninsula, in other words, 38% of the annual investment. In second place, the multifamily sector attracted 19% of the total amount allocated to the region last year: €2.345 billion. Offices complete the podium, with a share of 16% and a total investment of €1.921 billion.

After standing as the most dynamic asset class in Iberia in 2022, retail fell to fourth position last year, with €1.456 billion and a 12% share of the annual total. Alternative assets come next, representing 8%, from €925 million in transactions. Industrial & Logistics come in last place, going no further than €780 million, approximately 6% of the investment volume in 2023.