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50 // iberian.propery / 2017
dossier// ISSUE: TOP IBERIAN Investors
INVESTOR PROFILE: BEFORE AND NOW
During the recession years, office take-up declined, whilst the amount of
available vacant space rose. As a result, the prime rent dropped sharply,
plunging by around 40% in both Madrid and Barcelona.
Investing in the Spanish real estate market was therefore considered a
risky investment and as a result prices fell considerably, not just due to
the lack of demand, but also due to the rising number of divestments
taking place in the real estate sector, a situation which drove up supply.
Against this backdrop, opportunistic investors entered the market in 2013
and 2014, taking advantage of these low prices on the expectation that
the market would recover, that the value of their assets would increase
and that they would be able to subsequently sell them above their
acquisition price, thereby obtaining healthy capital gains.
Since then, the sector’s recovery has been clear for all to see. Demand
has recovered and prime rents have grown at a healthy rate for nearly all
of the last two years. Growth forecasts are also very upbeat for all sectors.
For example, in the office sector, Madrid and Barcelona are two of themain
European cities forecast to register the highest y-o-y rental growth until 2021.
Madrid and Barcelona boast strong rental growth potential for the next
5 years in all sectors.
This backdrop has fuelled investor confidence, and allowed the Spanish
real estate market to post two consecutive record investment volumes
in 2015 and 2016.
This newmarket climate has also allowed a newtype of investor to enter the
market, investorswith a Core Plus or Core profile that are looking for quality,
well-located assets where returns are mainly generated via rental income.
However, despite this type of investor’s heightened interest in the Spanish
real estate market, there is a lack of quality product on the market, given
that many owners are holding onto their properties in light of the forecast
rental growth. This has created a barrier to entry for this type of investor,
given that current owners who are willing to sell, are doing so based on
futuremarket conditions and not based on the reality of the current market.
The lack of prime product on the market is causing these investors to
move towards markets that have traditionally been classed as secondary,
or even to invest in non-prime product alternatives, such as construction
projects. Some isolated alternative investments were seen in 2016 and
more are expected to appear in 2017.
Core-Plus and Core investors are showing the greatest interest in the
Spanish real estatemarket, howeverValue-Add investors are best-suited
to the current market climate.
Given the lack of quality product, the investor profile that is undoubtedly the
best-suited to the current market climate is Value-Add. There are several
examples of these types of deals, especially in theoffice sector,where inves-
tors purchase assets with low occupancy rates or high capex requirements
in order to reposition and subsequently sell them when the assets have
higher occupancy rates, thereby obtaining attractive returns via value uplift.
INVESTOR TYPE
Since 2014, theword Socimi has become synonymouswith the Spanish real
estatemarket.Their role in themarket has andwillcontinue tobe key: in 2016
theywere once again the most active players, representing 39% of the total
investment volume. Moreover, aswell as the fourmajor players in the sector,
Merlin,Axiare, LarEspaña andHispania,which are listedon theSpanish stock
exchange, a total of 29 other Socimis are also listed on the MAB (Alternative
Stock Exchange Market), 17 of which were floated in 2016. This figure is ex-
pected to continue climbing in 2017, as newSocimis take the plunge and list.
In parallel with this, and in line with their target to grow in size and offer their
shareholdersmoreattractive returns,weare likelyto seemoreM&As, in some
cases clearlyaimedat developing specialisations anddivestingnon-strategic
assets. Socimis such asMerlin Properties have headed up some of themost
important deals in the sector, such as thepurchaseofTesta, ormore recently
the acquisition of Torre Agbar in Barcelona’s 22@ district.
In terms of investment volume, Socimis are followed by institutional funds
such as insurance companies, pension and sovereign funds, aswell as other
collective investment vehicles such as investment funds. Since 2015, this
type of investor has accounted for 29%of the total investment volume, high-
lighting big names such as Blackstone, Invesco, GreenOak andAxa among
others. Among domestic investors of this calibre, Meridia Capital is one of
the most active players, investing in almost all sectors, especially offices.
GRAPH 3: INVESTOR TYPE VERSUS TOTAL INVESTMENT VOLUME (2015 – Q1 2017)