SOCIMIS HELPED TO REGULATE THE FINANCIAL SYSTEM IN SPAIN FOR THE PAST YEARS

Top leaders in the Spanish real estate sector gathered on the 6th of February morning at the VII Iberian Reit & Listed Conference, held in Madrid. Organised by Iberian Property in collaboration with EPRA, the event brought close to 300 business leaders, investors and economic experts to discuss the trends, challenges and opportunities of the listed property market in a challenging economic context.

The day began with a welcome address by Roger Cooke, conference chairman, and senior advisor to Grupo Iberinmo; and Dominique Moerenhout, CEO of EPRA, who noted in his speech that over the past year, cautious optimism has been the dominant tone in the Spanish listed real estate sector and remains so today. While the industry has faced challenges, from regulatory pressures to evolving market dynamics, including takeover bids, adaptation continues. The macro landscape continues to shape the sector, but geopolitical uncertainty is now the biggest obstacle. The strategic shift in the US adds another layer of complexity: how will it affect global markets? “One thing is for sure, EPRA remains committed to attracting more capital and diversifying the investor base, opening up new opportunities for growth”. Dominique also shared that ‘to remain competitive, companies need to grow, and in that sense, IPOs could be the key to unlocking the next phase of expansion’.

In charge of providing insights on the role of European REITS, Hans Op’t Veld, Research Fellow at the Amsterdam School of Real Estate, explained how REITs are more than just investment vehicles—they level the playing field, offering diversification, liquidity, and professional management while ensuring transparency. “They help lower the cost of capital, stimulate real estate supply, and improve market liquidity, even during crises. In markets with distressed assets, like Spain and Portugal, REITs have played a crucial role in transferring ownership and stabilizing the sector”, Hans argued.

The presentation highlighted how REITs present a promising solution for growth in the right market, not only because of government initiatives or social awareness but also due to investors’ growing interest in engaging with sustainable development goals as a guiding framework. In Europe, despite extensive regulation, the focus is predominantly on reporting rather than taking action.

Interestingly, the REIT market began aligning with the SDGs before regulatory requirements, with about 84% of European REITs reporting their contributions, demonstrating proactive leadership.

Addressing environmental and social challenges necessitates private investment. In the Netherlands, for instance, large pension funds are actively allocating investments to address these issues, aiming to balance returns with social impact, with some setting targets for at least 20% of investments to be directed toward impactful projects. In conclusion, REITs have shown their capacity to achieve policy goals and current challenges underscore the need for effective investment vehicles like REITs, which possess the appropriate capital to drive meaningful market impact.

One of the most anticipated moments of the day was the round table discussion entitled ‘The Spanish REIT's & Listed Real Estate Market (R)evolution’, moderated by Ignacio Martínez-Avial, CEO of BNP Paribas Real Estate Spain, featuring the representatives of the main listed companies in Spain.

Positive developments, including a de-escalation in trade tensions or improved growth figures from countries like Spain, are possible outcomes that have not yet been reflected in current market prices. To navigate this landscape effectively, it will be crucial to align expectations with economic realities, ensuring that investment strategies are grounded in accurate market assessments. But does Iberia have a competitive advantage at the moment?

David Martinez, CEO of AEDAS Homes, began by putting into evidence that with the economy growing, interest rates declining, and employment rates decreasing, the financial health of Spanish households is in a strong position. This creates a positive environment for the housing market. However, when considering the endemic undersupply of housing in Spain and the construction industry’s limited capacity to scale up production, the situation becomes even more advantageous for the market.

According to official statistics, the number of households in Spain is projected to grow by 250,000 per year, while the construction industry is only producing about 100,000 new homes annually. This supply-demand gap is likely to persist for quite some time. As an example, AEDAS is currently developing nearly 5,000 homes as part of the Plan Vive by the Comunidad de Madrid, aimed at providing affordable rental housing. Of the 1,000 homes already delivered, each has received over 50 applications, clearly demonstrating the high demand.

For his part, Carlos Krohmer, Director of Corporate Development at Colonial, observed that Southern European countries, particularly Spain, are now leading in economic performance, attracting considerable investment. He pointed out that Spain could strategically benefit from its positioning in energy sourcing, particularly renewable energy, which should be factored into long-term planning.

In the investment markets, Spain has generated substantial liquidity over the past 24 months, creating opportunities for direct investment. He noted that a significant amount of large capital remains dormant, particularly in Germany, where ageing populations with accumulated savings are under pressure to diversify beyond fixed income and consider real estate investments. Having previously over-allocated within Germany at high prices, these investors are now likely to look towards other liquid markets with attractive risk-return profiles, such as Paris, Madrid, and Barcelona.

The need to maintain Spain’s current pace of growth while ensuring it remains sustainable was stressed by Ismael Clemente, CEO of Merlin Properties, who warned that growing at 2.5% while incurring a 4% public deficit is unsustainable, as it effectively means borrowing against future generations. In contrast, Portugal’s growth while maintaining a budget surplus illustrates a healthier model. Despite this, Spain is experiencing growth, and Ismael emphasised the importance of maintaining this momentum while also enhancing legal security for investors. He argued that growth alone is insufficient to attract foreign investment.

Moving to a sectoral insights debate, the CEO of AEDAS Homes, outlined three key levers to increase housing supply and address the supply shortage: the first is to produce more land, faster; the second is to produce more housing, faster; and the third is to attract more capital. And he put on the table initiatives for each lever: “To produce more land it is necessary to approve a Land Law that protects urban development processes, modify the regulations to make urban development uses more flexible, simplify the administrative processing of licences, even implement AI agents and encourage concessions on idle public land. To produce more housing, it is necessary to facilitate the incorporation of qualified foreign labour into the construction industry in an orderly manner and to promote and support initiatives to industrialise or prefabricate construction elements. And to attract more investment, a clear and stable legal and fiscal framework for investment must be put in place”. Increasing supply may seem like a simple solution, but it is the only way to solve a current problem that will worsen in the coming years, he warned.

Carlos Krohmer emphasised the increasing complexity of real estate, noting that it is no longer just about prime locations and square meters but also about amenities, IT services, and experiences. He highlighted the importance of integrating operational knowledge into real estate, particularly in emerging sectors such as data centres, where urban regeneration and the demand for quality urban living continue to grow.

Miguel Pereda, Executive Chairman of Grupo Lar, argued that the retail stock in Iberia is sufficient, allowing investors to focus on asset quality and management rather than new developments. He highlighted the resilience of the retail sector due to favourable yield spreads and positive sales metrics, which continue to attract investor confidence. The takeover bid over the Socimi Lar España is a living proof of the interest the sector is generating.

"Furthermore, the last 9 months brought a change in the debt markets. Today there is debt available at a reasonable price, so REITS investment will follow strong", Miguel Pereda added.

In the logistics sector, the market remains robust, displaying sustained growth with no immediate signs of slowing down, according to Ismael Clemente. However, this positive trajectory is tempered by several challenges. One significant shift is the deceleration of online commerce growth. Previously marked by double-digit expansion, the sector is now experiencing mid-single-digit growth rates. This slowdown could face further pressure from the introduction of tariffs, as the European Union recently announced new duties on small purchases.

Another crucial factor influencing logistics is the increasing integration of artificial intelligence into supply chain management. This technological advancement is driving greater efficiency among operators, as exemplified by the situation in Madrid, where vehicle loads were historically below 40%. AI is expected to optimize load management, reducing operational costs and potentially decreasing the demand for storage and cross-docking facilities. This enhanced efficiency will also contribute to alleviating urban congestion, as vans currently account for approximately 24% of Madrid's traffic. Nonetheless, the shift toward greater productivity may lead to localized oversupply issues, particularly in areas like Madrid and Barcelona, where some “tourist-driven” developments have expanded logistics capacity. Ismael Clemente anticipates that these imbalances will be managed through strategic pricing adjustments.

Turning to the data centre industry, the CEO presented an optimistic outlook, underpinned by a confluence of favorable conditions in Spain and Portugal. Both countries benefit from strategic submarine cable connections, surplus electricity generation, and resilient energy grids. Moreover, their relative isolation from the rest of Europe, once perceived as a disadvantage, has become a strategic asset due to the continent's dependence on Russian energy supplies. This geopolitical context has enhanced the appeal of the Iberian Peninsula as a data centre hub, setting the stage for continued growth in the sector.

A significant hurdle lies in public perception, particularly regarding environmental impact. There is growing scrutiny over the water and energy consumption associated with data centres, although Ismael argues that much of this concern is misplaced. Both Spain and Portugal produce more energy than they consume, negating the notion of excessive resource strain. Additionally, the belief that data centres generate minimal employment is misleading. In reality, “the industry creates substantial high-skilled job opportunities, although these roles often attract professionals whose educational backgrounds and independent thinking may not align with the preferences of certain policymakers”.

Another pressing challenge for the data centre industry is the need for enhanced distribution networks and grid investment. To fully leverage the opportunities presented by increasing demand, significant upgrades to the energy grid are required to minimize transmission losses. Yet, in an era where public spending is predominantly allocated to current expenditures rather than capital investments, securing the necessary funding for infrastructure development is no easy task. This issue is compounded by the political unpopularity of long-term investment decisions, despite their strategic importance for economic growth.

The rapid rise in investor interest in data centres has also sparked concerns about land speculation. Ismael notes that as demand for suitable land intensifies, prices are being driven up.

In anticipation of this trend, Merlin has proactively secured land in Navalmoral de la Mata and Valdecaballeros, located in the provinces of Cáceres and Badajoz. By taking this strategic position, Merlin aims to safeguard itself from market volatility and avoid contributing to speculative price inflation.

Complementing Ismael's perspective, David Martínez, CEO of AEDAS Homes, underscores the importance of strategic land acquisition in the context of a shifting real estate landscape. In 2024, Aedas invested €400 million in land and corporate operations, including the acquisition of Inmobiliaria Espacio, a prominent developer previously owned by the Villar Mir family. David Martínez attributes this strategic move to a favorable market environment accompanied by a significant shift in the capital landscape, as high-return-seeking U.S. investors are gradually being replaced by more conservative institutional investors.

Ismael’s observations also extend to the broader implications of artificial intelligence and hardware development, particularly in relation to DeepSeek. The company has achieved remarkable success by ingeniously re-engineering existing technological components. Using NVIDIA’s second-tier GPUs, optimized for power efficiency in model training, DeepSeek has leveraged open architecture platforms like PyTorch and Meta’s YAMA. Additionally, the company incorporated an algorithm derived from OpenAI, showcasing its ability to innovate within the framework of existing technological ecosystems.

However, Ismael suggests that the real inflection point for the AI hardware industry will occur when China starts manufacturing its own GPUs, CPUs, and TPUs with competitive quality. This development would diversify the market's supply sources, reducing dependency on established players and driving down costs. In Ismael’s view, this shift will democratize access to advanced computing power, further accelerating the growth of artificial intelligence. Consequently, the demand for computing capacity, storage solutions, and interconnection infrastructure is expected to surge, benefiting the data centre industry.

During the event, Blanca Hernández, Founder & CEO of Magallanes Value, presented the first Spanish social SOCIMI, an impact investment vehicle that seeks to end homelessness in Spain. In a country where there are 40,000 homeless people and 3.4 million empty homes, this initiative offers sustainable solutions through a model that applies 30% discounts on rent and, in the event of non-payment, is backed by the TECHÔ Foundation. It currently operates in 12 Spanish provinces, consolidating its position as an innovative proposal in the real estate sector with a social focus.

Before the coffee-break networking moment, Alexandre Lima, Director of Iberian Property, has presented the official launch of the third edition of the Iberian Property Investment Awards. «2024 was to some extent a year of recovery and reactivation of capital markets, a lot has been done, and especially during challenging times the true measure of success lies in rewarding those who take action. In this sense, Iberian Property is committed to recognise once again the most prominent players and best practices of the sector through this Awards initiative».

Now that interest rates have risen, REIT stock prices have suffered, even though their underlying assets remain high quality. So how should institutional investors analyze the market?

The gap in performance between successful and struggling properties is growing. The second half of the morning brought with it a roundtable discussion moderated by António Gil Machado, Partner at Grupo Iberinmo, the perfect stage to discuss how to generate value through operational management and wether if optimising asset performance necessarily means optimising share performance.

The difficulty to find alpha and understand real estate the further we step aside from a passive management approach was a core part of their discussion, which covered investment strategies, valuation challenges, the role of listed real estate companies (REITs), and how leverage and macroeconomic conditions shape the industry’s future.

Ana Escalante, Equity Research Analyst at Morgan Stanley, outlined how investors are moving from a purely defensive approach to selectively embracing more opportunistic strategies as macroeconomic conditions improve. However, she pointed out that the market still presents significant pricing dislocations, particularly between direct real estate investments and REITs.

One of the biggest hurdles remains the NAV discount, which arises because public market investors demand a higher return than private investors. While private real estate valuations adjust slowly based on transactions, listed real estate stocks reflect real-time investor sentiment, often exaggerating downturns. For generalist investors, this discount can be misleading, making it harder to attract capital into listed real estate.

She also discussed why traditional valuation methods have struggled in real estate investing. In theory, cash flow should be an effective metric for assessing listed real estate companies. However, historical performance suggests that cash flow-based stock-picking strategies have not consistently delivered superior returns. Instead, what truly matters is how well companies generate returns on NAV and whether they can offer both stable income and capital appreciation.

A key theme of the discussion was the divergence between book valuations and actual market prices. Ana Escalante emphasized that valuations (the numbers reported in company financials) are often lagging indicators, while real estate’s true value is determined by what buyers and sellers are actually willing to pay in the market. "For some continental European companies, the numbers you see in financial reports might be a ‘fiction’ ", Ana noted. “The market price is often much lower, which can hurt investors who lack deep industry knowledge.”

With a large expertise in direct real estate investment, Samuel Duah, Chief of Economics at BNP Paribas Real Estate, highlighted that "stable income returns, supported by capital growth, will be key to attracting core capital back into the market. However, the sector is not simply waiting—new players have already stepped in to fill the gap. Liquidity is available, but the real question is at what price investors can secure it."

Besides he underlined that cap rate compression is unlikely in the near term, meaning that investors shouldn’t expect asset price increases to drive returns just yet. Instead, investment strategies should focus on stable income and long-term growth potential.

Albert Olasolo Artero, Portfolio Manager at Zurich Insurance Company pointed out that many institutional investors are already investing in real estate, but they remain selective. He agreed with Samuel Duah stance, mentioning that "no one believes real estate companies will default - the question is whether investors want to bet on short-term price fluctuations or take a long-term position based on intrinsic value.”

On his own words, he confessed that "what I want from REITs is a stable return, a growing return, and at least flat capital values because investors tend to see REITs more like bonds than traditional real estate investments - you put your money in, and you receive a predictable payout until the end of the project". Based on his rationale, initial investors shouldn’t be looking at REITs for rapid revaluation or major price appreciation; that expectation is more suited for real estate companies with longer holding periods of five to ten years. The appeal of REITs lies in their ability to generate steady income, and the market generally has confidence that they will maintain that income stream.

Still, he alerted for the fact that many REITs were structured in a low-interest-rate environment, where companies could take on more leverage to boost rental income and, in turn, deliver higher dividends to shareholders. As Ana Escalante pointed out, that financial model worked well under those conditions. However, now that interest rates have shifted, asset devaluations have followed. While this may not always be immediately reflected in NAVs, the market is already pricing it in.

"Over the past five years, returns haven’t been particularly strong, but REITs hold some of the highest-quality assets. With that comes a trade-off: investors accept lower dividend yields in exchange for greater stability", Albert emphasized.

Ana Escalante stressed that generalist investors have historically underweighted European REITs, partly due to the sector’s relatively small global footprint. However, she revealed that US investors are beginning to show renewed interest, seeing opportunities in the valuation gap between US and European REITs.

Albert backed this up by stating that Zurich Insurance has been increasing its REIT exposure over the past 6–12 months. He anticipates that once interest rates start declining, valuations will begin converging toward NAV, triggering a flood of capital back into the sector.

Leverage remains a key concern for Morgan Stanley’s real estate analysis, Ana explained. While declining interest rates have eased some pressure, many real estate companies are still highly leveraged. This means that instead of investing in new opportunities, they will use future cash flows to pay down debt - limiting their ability to grow. However, some companies have maintained strong balance sheets, positioning themselves to capitalize on the next phase of the real estate cycle.

Counting with the interaction of the audience, Carlos Krohmer, Director of Corporate Development at Colonial, raised an important point: investors often oversimplify the relationship between real estate yields and interest rates. He argued that while headline yields may seem low, they fail to account for total return dynamics. Using Colonial as an example, he pointed out that while the company’s yield sits at 5%, their earnings per share (EPS) have grown by 13% annually over the past four years.

"However, many public market investors are fixated on short-term valuation metrics, failing to appreciate the long-term value creation of listed real estate companies", Carlos Krohmer noted.

The roundtable agreed that European REITs are likely to outperform the broader equity market in the near term, a rare but powerful trend.
"REITs are high-beta stocks - when markets rally, they tend to outperform significantly," Albert concluded.

Javier Sánchez, Director of Technology and Communications at AEDAS Homes, delivered a compelling keynote presentation on digital intelligence, its current state, its impact on real estate, and the pioneering steps AEDAS Homes is taking in the field of agentic AI. He underscored the responsibility that senior executives bear in navigating this transformative landscape, arguing that only by gaining a profound understanding of the journey towards advanced intelligence can they safeguard their companies from becoming obsolete in the rapidly evolving future.

Javier Sánchez’s reflections on OpenAI's model 03 were particularly striking. He likened its capabilities to those of a multidisciplinary genius, excelling in programming, mathematics, and problem-solving, while surpassing human experts in specialised fields. This, he suggested, demonstrates a remarkable degree of general intelligence. He then posed a provocative question: what does a world of cognitive abundance look like? At present, there are approximately eight million PhD holders worldwide—roughly one per thousand people. Yet, with continuous advancements in AI, this ratio is on the verge of a dramatic reversal.

For the real estate industry, he argued, this shift presents an extraordinary opportunity to bridge the innovation gap with other, more advanced sectors that have historically invested more heavily in technological progress. Rather than viewing this change with trepidation, he urged industry leaders to embrace it as a tool for de-risking their businesses.

Using AEDAS Homes as an example, he explained that each development project carries approximately four years of risk: one year is required to find and purchase suitable land, another for securing the necessary licences, and two more for construction and the delivery of the homes. By leveraging the transformative power of digital intelligence, these risks can be mitigated more effectively. At the heart of this transformation, lies the mastery of language through large language models (LLMs). He emphasised that language is fundamental to virtually every aspect of the real estate industry, from design and investment to management and customer experience.

In practical terms, the benefits of adopting digital intelligence are vast. Companies can achieve greater efficiency and cost optimisation, make more informed investment decisions through data-driven risk management, deliver enhanced user experiences with personalised solutions, and scale operations through increased automation.

At AEDAS Homes, digital intelligence is being harnessed through a bold vision of agentic AI—systems capable of taking autonomous actions based on predefined goals. These AI agents are designed to perform tasks without constant human oversight, transforming traditional workflows, which AEDAS tasked with maximising AI's value by driving productivity and operational efficiency through high-impact projects that enhance the company’s return on equity.

The team’s strategy focuses on three pillars: data, augmented human capabilities, and the creation of a digital workforce. Having launched a digital workforce, selecting seven AI projects from an initial pool of 182 ideas, AEDAS counts with 5 agentic AI systems now operating alongside the company’s 320 human employees. These digital agents cover urban planning, commercial decision-making, legal advisory, technical support, market data analysis, and even press release drafting, contributing to an expected annual productivity increase of 12% to 15%. Through this seamless integration of human and digital workforces, AEDAS Homes is leading the way in leveraging AI as an autonomous driver of organisational success.

MERLIN Properties is redefining the landscape of digital infrastructure with a unique value proposition rooted in accelerated time to market, cutting-edge technology, and an unwavering commitment to sustainability and energy efficiency.

Francisco Porras, Data Centers Business Unit at MERLIN Properties, showcased the company strategy that led it to become a leader in the Iberian data centre market. MERLIN offers a strategic advantage with fully owned, large-scale permitted land situated next to key cable landing stations, enabling rapid deployment and operational efficiency. Three data centres are already in operation, delivering an exceptional availability rate of 99.9999%, or “six nines,” a standard of reliability critical for today’s digital demands.

Equally important, the SOCIMI is at the forefront of sustainability, boasting a pioneering approach with an annualised Power Usage Effectiveness (PUE) of 1.15 and zero water cooling, achieving a Water Usage Effectiveness (WUE) of 0 litres/kWh. This environmentally conscious design is complemented by the use of 100% renewable energy, ensuring carbon-neutral operations. Furthermore, MERLIN's data centres are carrier-neutral, offering connectivity to multiple providers, and are engineered to support the high-density needs of modern AI applications, with rack densities of up to 70 kW using air cooling and 200 kW per rack with direct liquid cooling. This advanced infrastructure is backed by an extensive track record in the Spanish property market and an exclusive partnership with US-based Endeavour, a leader in data centre design and technology.

A critical aspect of MERLIN’s strategy lies in its nuanced understanding of the interplay between real estate and digital infrastructure. “Contrary to popular belief, data centres are not merely engineering projects; they require rigorous due diligence in real estate acquisition, particularly to properly understand Spain’s complex regulatory environment with its 17 autonomous regions”, Francisco Porras argued. MERLIN’s deep local expertise ensures that challenges related to permits and power acquisition are expertly managed, mitigating the risks that have hindered other developers.

This strategic foresight has enabled MERLIN to successfully deliver 60MW of capacity, with 200MW currently under development and an additional 380MW identified for future expansion.

The growth usage of technology resources as a service and on demand is breaking a new path in real estate. The last roundtable of the morning moderated by Richard Betts, Co-Founder & Head of Content at Real Asset Media, where the increasing strategic importance of data centers was even compared to military infrastructure due to their essential role in national security and economic stability. As a result, location selection is becoming more complex, with geopolitical, energy, and connectivity factors playing a crucial role. 

Jacques Perdrix, Head of Europe & Portfolio Manager Public RE Securities at HEITMAN, emphasized the explosive growth of global data production and the structural, long-term drivers supporting the data center industry. He illustrated this with projections from Statista showing that the amount of data generated worldwide is set to increase from 175 zettabytes in 2025 to around 600 zettabytes by 2030 and over 2,140 zettabytes by 2035. To put this into perspective, one zettabyte equals one billion terabytes, meaning that by 2035, the world will generate about two trillion terabytes equivalent to two quadrillion gigabytes of data annually.

To further quantify the scale of this demand, Jacques pointed out that the most powerful hard drives available today hold 20 terabytes each. Meeting future storage needs would require over 100 billion of these high-capacity hard drives by 2035. On an individual scale, this translates to each person on the planet needing to buy and store 1 to 2 high-capacity hard drives every year just to keep up with projected data consumption.

This surge in data production has major implications for energy consumption. Currently, the global data center industry consumes 60 Gigawatt-hours (GW/h) of power, with the largest players (FLAP-D market) accounting for 80–90% of that. Over the next five years, this demand is expected to increase by more than 2.5 times, surpassing 150 GW/h. In Europe, where current capacity stands at 6 GW/h, demand is projected to quadruple to over 25 GW/h, primarily driven by cloud computing and data protection requirements.

Spain is emerging as a key market in this landscape. "Madrid’s data center capacity has already grown from 100 MW/h two years ago to 250 MW/h today. Projections suggest further growth to 500 MW/h in the near term. The overall Spanish Data Center market capacity could potentially be reaching 800 MW/h to 1 GW/h in the long run, representing a 40% compound annual growth rate. Given this trajectory, I firmly believe Spain is on track to transition from a Tier 2 to a Tier 1 data center market, attracting significant investor attention", he stressed.

One of the key challenges is the cost and availability of energy. He pointed out that while the average cost of electricity in the U.S. is around $8 per kWh, in Europe, it is significantly higher at $18 per kWh. Spain, along with the Nordic countries, offers some of the cheapest electricity in Europe, making it an attractive location for data center development. However, securing access to the power grid remains a major bottleneck, as many European countries lack the centralized energy sourcing and exchange systems found in the U.S. This means that, despite high demand, bringing new supply online is increasingly difficult.

This is particularly relevant in Europe, where regulatory and energy constraints have already limited new development in major hubs like Dublin and Amsterdam. As a result, investment is shifting towards Tier 2 markets, including Madrid, Zaragoza, and Bilbao, where Spain is gaining a competitive edge.

Another key topic addressed was the regulatory hurdles, which make it even harder to bring new data centers online. In Europe, the average time to market for a new data center is 36 months, meaning that existing facilities will continue to benefit from high demand and limited supply for the foreseeable future.

Carlos Portocarrero, Partner at Clifford Chance, shared insights on Spain’s growing role as a European data center hub, citing recent major transactions in Zaragoza in which the law firm was involved. He emphasized the unprecedented level of support from regional authorities, including declarations of public interest, workforce training initiatives, and infrastructure collaborations. Such efforts aim to position Spain as a key player in the European market.

However, he cautioned that data centers are not a sector open to every investor due to the high level of expertise required. "A lack of technical knowledge can lead to costly mistakes, making it essential for investors to work with experienced operators".

Carlos Portocarrero also addressed the ongoing debate about whether data centers should be classified as real estate or infrastructure assets. He argued that data centers differ from traditional infrastructure, such as bridges or roads, because they can be repurposed for alternative uses. Additionally, infrastructure investments tend to be long-term and conservative, whereas data centers carry a higher risk profile. For now, he concluded, "it makes sense to categorize them as real estate".

Another analyses key trend in the data center industry relates to the shift from capital expenditures (CapEx) to operational expenditures (OpEx). Businesses, including large corporations, are increasingly moving towards an "asset-light" model, outsourcing their data center needs to specialized operators. Fernando Abril-Martorell, Partner Equity Research at Alantra Equities, argued that this shift is driven by the high costs and complexity of running a data center, which requires significant upfront investment, ongoing technology upgrades, cybersecurity measures, and highly specialized engineers, who are in short supply.

Specialized data center operators benefit from lower capital costs and economies of scale, making outsourcing a more cost-effective option for companies. Some of the cited examples were Amadeus and Marriott, two companies from the traveling and leisure segments, which have formed partnerships with companies such as Microsoft to enhance their data systems, rather than investing directly in infrastructure.

On what concerns to the challenges associated with financing data centers, one of the most demanding times is the development phase. One of the biggest hurdles is gaining access to the power grid, which can take up to five years. This long timeline effectively excludes funds that operate on short investment cycles. However, he noted that, overall, financing conditions for data centers are not drastically different from other asset classes.

Financing is particularly difficult for new entrants due to two key factors. First, data center investments are highly capital-intensive, requiring around €10 million per megawatt. Second, unless a developer is a well-established operator, securing pre-leased agreements is nearly impossible.

Once a data center is built and tenants are secured, the financing outlook improves significantly. Data centers typically sign long-term lease agreements of 15 years or more, with fixed escalators. Tenants, often cloud operators or large AI firms, generally have strong credit ratings. This stability allows for higher leverage, with loan-to-value (LTV) ratios in the range of 40–50%. At this stage, the value of the asset significantly increases due to the steady rental income.

Fernando also pointed out that "while rental income projections are relatively clear, future operating and capital expenditures remain uncertain. Despite these uncertainties, equity markets are still open to data center investments". He cited Merlin Properties recent success in raising €920 million to finance a €2.1 billion CapEx project, achieving approximately a 50-55% loan-to-cost ratio. Once operational, this should translate into a 25% loan-to-value ratio, providing additional financial flexibility for future investments.

Overall, the Alantra Equities Research Partner emphasized that while data centers require substantial upfront investment and patience, well-structured projects with strong tenants can achieve attractive financing terms and long-term stability.

The critical dynamics of the leasing markets were the last topic addressed in the conference, underlying how pricing and operating expenses impact valuations. The private sector leverage is significantly high, making it more vulnerable to downturns. However, even if a downturn occurs, this will create opportunities for low-leverage investors to acquire assets at lower prices. Referencing Jevons’ Paradox, technological advances that improve efficiency tend to increase demand rather than reduce it, implying that concerns about reduced usage due to efficiency gains may be overstated.

Furthermore, concerns about physical space reduction were dismissed, as tenants primarily rent based on power usage, not square footage. Besides, more efficient data centers often lead to higher pricing power. “Regarding historical growth rates, where early U.S. data center expansion was around 2–3% annually, Europe is currently experiencing growth of around 6–7%, thus resulting in a significant supply-demand imbalance in Europe, where vacancy rates in top cities have dropped from 20% to below 10%, strengthening owners' pricing power”, Jacques Perdrix noted.

On valuation, Jacques discussed how investors must consider obsolescence costs. He mentioned that in the U.S., the typical accounting lifespan of a data center asset is about 20 years, with significant maintenance investments required after 8-10 years. Specifically, battery replacements are a minor cost, while chillers and cooling systems require significant reinvestment after 10-15 years. To manage these costs, US landlords typically set aside around 20% of their net operating income yearly to address obsolescence over time.

Closing on a positive note, the panel revealed that modern buildings are designed more intelligently, with dual backup systems that enhance reliability and reduce future obsolescence costs. While initial construction costs may be higher, these advancements may mitigate long-term capital expenditure requirements. The overall approach to valuation should include discounting potential returns to account for these hidden costs, ensuring sustainable investment strategies.

The VII Iberian REIT & Listed Conference counted with the main support of Colonial, MERLIN Properties, Lar España, AEDAS Homes, BNP Paribas Real Estate, Clifford Chance and Morais Leitão.

ACAI, ACI, APAF, APFIPP, APPII, ASPRIMA, EFFAS, Instituto Español de Analistas, WIRE and WIRES, have also accompanied Iberian Property as Institutional Partners.

The event took place in LOOM Azca, a new venue in Madrid powered by Merlin Properties.