This study concerns the first quarter of 2020 and was carried out by RICS, the international reference in terms of accreditation for the real estate sector.
The answers from the more than 2.604 professionals who took part in the survey, both domestically and abroad, highlight the impact the COVID-19 crisis is having on the sector. 69% of the surveyed professionals believe that the sector is already at a low stage within the cycle, which represents a significant increase when compared to the 33% who had the same opinion when answering the fourth quarter of 2019 version of the Commercial Property Monitor.
Roger Cooke MBE, president of RICS in Spain stated, «the survey clearly shows that the market is reacting to the unique circumstances we are experiencing due to the COVID-19 crisis. The impact will take some time to become fully visible, but we know, that the sector will go through several important changes, for a while, to which it will react with creativity».
Investment perception drops to levels not seen since 2013
The Investment Sentiment Index dropped to -5, whereas during the fourth quarter of 2019 it had been at +9, with this being the worst score since 2013. Nevertheless, the retrospective indicator, which measures changes between investment surveys during the last three months, remained marginally positive.
Prospects for the next 12 months are different from those obtained during the fourth quarter, which shows the reduction in terms of expectations over capital’s value in general, from professionals. Sharp drops in each of the categories covered by the survey are expected, with the retail segment in secondary locations being the one that shows more vulnerability for the next few months and the industrial prime segment showing the highest resilience.
Sentiment concerning occupancy drops to a minimum
The Occupier Sentiment Index for the Spanish market reached a minimum during the first quarter, -17, whereas the results for the fourth quarter of 2019 were set at +15 (the index measures the difference between respondents who say the situation has improved and respondents who believe it is worse). For the office segment, the robust growth in occupancy demand registered during the previous survey stagnated during this year’s first quarter, whereas within the retail segment, demand for space dropped sharply once again.
Rentals’ drop divided by segment and typology
The magnitude of the economic challenge caused by the COVID-19 crisis is burdening the rentals’ projections for the coming 12 months which have fallen into negative terrain on all segments. Rents are expected to suffer increasingly sharper drops in the retail and office segments within secondary locations which could reach -11% and -7% respectively. On the other hand, the prospects are not as negative for rents in the office prime segment and for the industrial segment since, although being negative, those drops should be of around -1,5%.
Perception on European real estate is in line with that of Spain
The general sentiment among the sector’s experts concerning the European real estate market was also heavily affected by the crisis caused by the COVID-19 crisis. The Occupier Sentiment Index was negatively affected in 33 out of the 34 surveyed countries, during the last three months and decreased on average 28 points since the last quarter of 2019, reaching -27. This same trend can be observed on investors. The Occupier Sentiment Index shows a negative result in all the surveyed countries, except three, having fallen on average 24 points when compared to the last quarter of 2019, reaching around -18.
The results are not the same on all segments. Although retail was the most affected due to the lockdowns resulting from the population’s confinement, the sentiment deterioration was larger in the office segment. Nevertheless, an acceleration in terms of the trend towards e-commerce can be seen and as a consequence, a growing interest for prime logistic areas is expected. «Consumers’ behaviour has changed due to the circumstances, and remote work affects the way office spaces are seen. It is likely that the current e-commerce boom and the change in distribution chains will bring a new change in the investment dynamics», explained Simon Rubinsohn, chief economist at RICS.
«It is troublesome that it is not yet clear the total reach in terms of the harm this crisis will cause to the economy, so it is not surprising that the respondents are aware that there will be no quick recovery. This setting demands support from the governments in order to reach a world recovery as restriction measures are lifted in each country. There are also reasons to aspire to a more collaborative approach between owners and tenants to face the challenges caused by the current crisis. What started as a sanitary crisis has turned into an economic crisis, which means we will see more structural changes in the long-term as a result of this pandemic», he added.