Spain and Portugal have taken advantage of the recent years of economic recovery to attract large international investors and to enter the list of the most interesting real estate markets in developed countries.
“The Iberian market is a perception of any investment. Virtually no distinction is made between Spain and Portugal. For us it is a unique market, even though there are slight regulatory differences,” says Ismael Clemente, CEO of real estate giant Merlin Properties.
There are several reasons why foreign capital is entering both countries, in search of new business opportunities.
Spain and Portugal form one of the most powerful tourism markets in the world: in 2019 alone they received more than 106 million visitors. In Spain the figure was nearly 84 million, with a year-on-year increase of 1.1%, while in neighbouring Portugal it stood at 22.8 million, an increase of 7.5% over 2018. It also highlights its geographical location (direct connection with Latin America) and its strategic infrastructure (ports and quality roads for example). This is an important factor because more than anything else, it increases investment opportunities in sectors such as hotels or retail.
Entering the purely real estate field, BNP Paribas Real Estate points to competitiveness as another strong argument, thanks to the fact that labour and real estate costs are lower in cities like Marbella, Madrid, Barcelona or Lisbon than in capitals like London, Paris, Berlin, Rome, Stockholm or Amsterdam.
In addition, the real estate sector of the French bank concludes that both countries also have high levels of education (especially in business schools, which are among the most important in the world), an advanced technological level and good quality of life. “We must have better management, but the ability to generate talent means that we have a high level of demand,” explains Ignacio Martínez-Avial, managing director of BNP Paribas Real Estate in Spain.
Rent is also an important feature. In Barcelona, office rental prices have grown by 50% in the last five years, while in Lisbon they have risen by 37% in the last four years and in Madrid, prime rentals remain well below the peak of the bubble. Despite these increases, BNP stresses, these cities are registering record levels of absorption. With more than 600,000m2, the Spanish capital reached a record high in 2007, while the Portuguese capital has broken records with almost 19,000m2 and the Catalan capital has done the same with 400,000m2. And the figure could continue to rise thanks to the exponential growth of areas such as Barcelona’s 22 technology district.
Nor should we forget that Spain and Portugal have one of the highest life expectancies in the world and that they tend to receive many foreign students, meaning they are potential people in need of old people’s homes, student halls and other alternative assets such as ‘co-living’, which is increasingly in demand by investors, as well as formulas such as ‘build to rent’, which consists of constructing homes in order to rent them out.
There’s room for all investors
The experts state that the Iberian market is attracting the attention of different types of capital and strategies. BNP Paribas highlight that there is “room for all investors, because each asset and each region is at a different point in the cycle. We have a very good year ahead of us and the different degree of maturity of the assets opens up the range to different investors”.
The massive arrival of conservative investors is particularly noteworthy, as opposed to the short-sighted ones that entered the market during the first years of the crisis. “The quality of the investor who is coming is among the best we have ever had, because they are ‘core’ and ‘value added’ and have long-term strategies,” says the CEO of Merlin. This is precisely the investor profile that the sector most values and that Europe most needs in order to be able to take on projects for the future.
However, despite the fact that the Peninsula continues to be the focus of investment, experts say that an important factor is coming into play: the need to differentiate assets. “It’s not just about the fundamentals, because you have to offer business opportunities. The expression ‘location, location, location’ is not the only important thing and the differentiation of assets is becoming more important. This is key, because it is not enough that a property is simply well located, it must be efficient and have additional services. There is a way to generate value and we still have a lot of stock with room for improvement,” says the head of BNP Paribas Real Estate in Spain.
Finally, the experts insist on the importance of political decisions to generate legal certainty, not uncertainty, so that the sector continues to have traction.
This article was published first in Idealista.com