High energy costs, inflation levels and the ongoing war in Ukraine are taking us through turbulence. However, the fundamentals of the logistics real estate industry remain robust in Spain, with unprecedented levels of take-up of space and vacancy rates of 2.3% in the Barcelona market and below 6.3% in the central zone. Logistics is undoubtedly one of the asset classes that every real estate fund wants to have in its portfolio.
It is important to take a quick snapshot of where we were before the recent increase in interest rates. Our sector has been experiencing a historical compression of yields over the last two years, reaching below 4% in Spain. This has led to an unprecedented increase in cap values and, above all, in the price of land.
At the same time, it is very important to note that, on the contrary, rents have remained stable during these two years and that in a situation of deceleration it is logical to expect that rents will not rise in the short to medium term, except, of course, in certain markets with low product availability and high demand for space.
The increase in financing costs and other factors have begun to cause a timid correction in yields in our industry, with experts forecasting an expansion of between 4.75% and 5% by the end of 2022. Let us not forget a relevant reference data regarding the spread, and that is that the Spanish 10-year bond was at 3.15% in October 2022.
With a new outlook of more limited income growth, more stable construction prices, although still high, the increase in financing costs and the expansion of yields will mean that the price of land will tend to fall significantly in order to make new developments viable.
We are therefore facing a situation of uncertainty that is causing investors to be in a wait and see mode because they are unable to determine where yields will be in the coming months and when they will stabilize, a situation that tends to be prolonged over time, especially in Spain, due to the resistance to accepting the new reality, unlike in Anglo-Saxon countries, which are much more pragmatic.
For the good of the industry, let us hope that the turbulence will pass as soon as possible and remain just that, turbulence, and that the necessary correction will be made quickly and swiftly in order to continue advancing in the generation and modernization of the logistics infrastructure so necessary for our country.