Spanish commercial property has showed its first double digit returns in nearly a decade last year, according to analysis by MSCI. Property investors saw total returns of 10.1% in 2014, the first time the IPD Spain Annual Property Index data has reached double figures since 2007.
Overall, Spanish commercial property outperformed the domestic equity market, which returned 8.9%, but underperformed bonds, which delivered 24.5%.
The recovery in commercial property returns was driven by capital growth of 4.2%, compared to -4.9% in 2013. Last year was the first time capital values have increased after six consecutive years of falls. Income return remained stable at 5.6%.
Retail was the worst-performing sector, but still experienced a total return of 9.7% - a sharp rise from the -1.5% reported in 2013. The sector also saw the weakest rate of capital growth at 3.1%.
Retail design expert Jorge Ponce, Madrid-based Director at global architecture, urbanism and design practice Broadway Malyan, commented:
“Spanish retail property is attractive to investors due to a combination of factors – prices have bottomed-out as a result of the long downturn, confidence in the Spanish economy has returned and, in a world of uncertainty and volatility, the country is now perceived as a secure investment destination.
“Malls represent long-term investments as long as they adapt themselves to the constantly changing retail sector and rise of e-commerce. This means that they must update every few years and that is dependent on periodic investment.
“The best strategy in repositioning mall assets is to focus on improving customers’ experience. With the rise of e-commerce, footfall is dependent on developing the leisure side of the proposition – better dining offers, better outdoor features and landscape, more open-air malls and terraces, better shops with larger and taller frontages.
“Credit is coming back, which helps smaller investors target franchisees and local operators, with the key issue, in terms of enabling them to compete, being about having the right concept – usually in a niche sector.
“As consumption rises retail rents are also improving. While the downturn reshaped the retail landscape, with more price-conscious consumers and the rise of low-cost retail formats, fit-out contributions and incentives for main anchor tenants are now becoming the norm – with the investment fast-becoming an important part of business plans.
“In the future we expect investors to focus on larger malls with more comprehensive offers, including increased leisure components, for greater returns – Spain is truly embracing the concept of the 'shopping resort', focused around wider leisure and recreational uses in the retail mix.”
(Pictured) The Holea centre, designed by Broadway Malyan and which opened last year in Huelva, southern Spain, as one of Carrefour’s first commercial centres.
Distinguished by its global reach with 16 studios across world centres, unrivalled diversity with 500+ design experts and distinctive client focus with over 75% income from repeat business, Broadway Malyan creates world-class and fully-integrated cities, places and buildings to unlock lasting value.