The office market in Madrid appears to have taken a downward turn since the beginning of 2012.

According to new research published by Savills, the vacancy rate in the Spanish city has been creeping up over the past few months, while a rising supply of such commercial properties coupled with falling demand is putting pressure on rents.

The firm noted approximately 300,000 sq m of new offices are expected to come on to the market in Madrid over the course of 2012; however, demand is sliding, with many occupiers choosing to downsize due to the current economic climate.

On average, the rent charged for Spanish commercial real estate in Madrid's central business district is now nearly 40 per cent below its peak, and the organisation is forecasting prime rents will stand at €309 (£257) per sq m per year by the end of the first quarter of 2012.

However, while Madrid's office sector may be struggling, it appears its retail industry is faring better. A Jones Lang LaSalle report published earlier this month revealed the Spanish city is the fourth most popular destination in Europe for retailers to have a store in.

Barcelona also made it into the top ten, ranked as the seventh most desirable location in which to have retail premises on the continent.
 

Madrid is one of the most desirable destinations in Europe to hold retail premises.

According to new research from Jones Lang LaSalle, the Spanish city is the fourth most popular place in the continent to have a store, behind London, Paris and Moscow. Barcelona, meanwhile, is ranked in joint seventh position with Munich and Istanbul.

The revelation that businesses are keen to have space in Madrid and Barcelona may encourage investors to consider the merits of Spanish commercial property in this sector.

James Dolphin, head of the pan-EMEA (Europe, Middle East and Africa) retail agency at the firm, commented: "Many top-tier retailers will accept flagship space in iconic locations and nothing less. This is maintaining or, in some instances, putting upward pressure on rents in super-prime locations."

The office market in Madrid also received a boost recently, when DTZ upgraded the outlook for this asset class from cold to warm in its European Fair Value Q4 2011 report.

Capital appreciation, rather than rental income, is behind the bulk of investor returns from Madrid offices, unlike the majority of other European markets, where the reverse is true.
 

The Madrid office market has had its outlook for 2012 upgraded from cold to warm by DTZ.

In its European Fair Value Q4 2011 report, the firm was more upbeat about the prospect of returns in this sector of the Spanish commercial property market than it was in the previous three-month period.

According to the DTZ research, Madrid is one of the few European locations where capital appreciation rather than rental income has been the driving force behind investor returns.

Meanwhile, the organisation also highlighted the stability of yields for offices in Madrid, which remained at 5.75 per cent throughout 2011, with no fluctuations anticipated over the coming months.

Last month, Savills drew attention to the strong start to 2012 for Madrid's office market, pointing to the sale of the Torre Picasso building, which was purchased for €400 million (£335 million).

According to the real estate firm, this accounted for ten per cent of the total transaction volume recorded in the sector in 2011.

Looking forward, Savills expects the majority of deals this year to be concluded by domestic buyers in the €30 million to €50 million range.

Madrid's office market is not expected to significantly improve during 2012, despite a strong start to the year.

This is the opinion of Savills, which noted investment in Spanish offices will be limited due to falling demand for space and a lack of confidence in the country's economy.

"It is likely that growth in Spain will remain muted until 2013, and with foreign investment mainly focused on retail, we expect the domestic buyers to dominate the office market this year," Gema de la Fuente, of Savills Research, commented.

One bright spot for the Spanish commercial property sector was the sale of Torre Picasso, a Madrid office development that was purchased for €400 million (£338 million) at the start of 2012. The firm revealed this transaction represented over ten per cent of the total volume of deals completed in 2011.

Torre Picasso is one of the city's tallest skyscrapers, boasting 43 floors, the majority of which are used for offices.

The deal to buy the building was revealed at the end of December last year, with construction firm Fomento de Construcciones y Contratas announcing it was to be purchased by Pontegadea Inmobiliairia SLU, an investment vehicle set up by Zara founder Amancio Ortega.
 

New research has revealed that the amount of money ploughed into the Spanish commercial property sector fell by over 50 per cent during the first three quarters of 2011, compared with the same period a year earlier.

According to Savills, the nation has seen €1.25 billion (£1.07 billion) injected into its commercial real estate markets between January and September this year.

The firm noted that the country's economy has been "severely affected by tension in the financial markets", which has resulted in many investors taking a more cautious approach.

Danny Kinnoch, international investment director with the organisation, commented: "Although there is product available, investors are increasingly conservative and continue to wait for the perfect investment."

Looking forward, Savills predicted that a lack of finance will prevent many potential deals being closed, while there are problems with existing transactions due to the extended length of time it is taking for sales to go through.

Data published earlier this month by the Royal Institution of Chartered Surveyors revealed that sentiment among both occupiers and investors in Spain remained in "deeply negative territory" during the third quarter of this year.
 

The latest data to be published by the Royal Institution of Chartered Surveyors (Rics) into the state of European commercial property markets shows an overall decline.

Countries such as Spain, which have been affected by the sovereign debt crisis on the continent, in addition to poor domestic economic performance, have been hit particularly hard.

According to the Rics findings, capital value and rental expectations across all areas of the Spanish commercial property sector are well into negative territory.

In terms of the underlying value of assets, office and retail premises have slipped further than their industrial counterparts.

However, there is a greater disparity when it comes to rental expectations, with industrial still the more favoured class, closely followed by retail buildings, while the sentiment surrounding offices has been hit much harder.

Simon Rubinsohn, Rics chief economist, noted that "overall, confidence has definitely taken a knock".

He attributed this to the "considerable levels of uncertainty in financial markets around the world and the intensification of the euro area crisis".
 

The office market in Madrid's central business district (CBD) is showing signs of recovery, the latest research from Savills has revealed.

According to the organisation, vacancy rates in the Spanish city dropped during the second quarter of the year to reach 4.73 per cent, compared to the 5.31 per cent recorded in the first three months of 2011.

Meanwhile, Savills also noted that a lack of new developments has resulted in landlords refurbishing their properties in Spain to bring new space on to the market.

Ana Zavala, head of office agency at Savills Madrid, described this as "a promising sign", although she noted that there are still concerns over the economy that are affecting commercial real estate.

However, there has been a low level of transactions in the office building sector since the beginning of the year, which has helped keep yields steady.

The Royal Institution of Chartered Surveyors recently issued its European Commercial Property Survey for the second quarter of the year, which predicted that the number of investment transactions in Spain will increase over the next three months.
 

The Spanish and Portuguese property markets could be dealt a timely boost later this week when the hosts of the 2018 and 2022 FIFA World Cups are named.

Spain and Portugal are among the leading candidates after registering a bid together, A Place in the Sun reports.

If successful, the two countries would benefit from a boost to their fragile economies and potentially an improvement in their respective property markets, the news provider stated.

The news could interest individuals looking for real estate in Spain as there are currently a number of bargain homes available.

Meanwhile, a recent survey from tourism marketing experts, Pangaea Network, found that hosting an international football tournament will do more to boost a nation that any other sporting event.

According to the report, football tournaments are four times more popular than motor racing and there is no bigger sporting event in the world than the football World Cup.

Yet another Spanish developer is facing administration and possible bankruptcy as the global down turn continues to affect the property market...

Spanish banks are turning into some of the biggest real estate companies in Spain, just as they did during the last property crash of the late 80s and early 90s.

To a greater or lesser extent, banks are running some of Spain’s biggest listed developers, companies like Colonial and Metrovacesa, who were forced to throw themselves at their bankers’ feet when they couldn’t cope with their billions of Euros of debt.

It’s not just the big developers with billions of Euros of debt that the banks are having to take over to prevent their loan default rates from going through the roof. All around Spain many small regional banks and savings banks have been quietly taking over small local developers for the same reason.

Having taken over developers or their assets in return for cancelling debts, many banks and savings banks, known as cajas, now find they own a wide variety of real estate assets from land and flats under construction to finished developments and business parks.

Knowing what to do with all their new real estate holdings is an increasing problem for Spain’s banks. Big banks like Santander have set up new divisions to manage property portfolios, which in Santander’s case is valued at more than 2 billion Euros.

But banks are not property companies, and on the whole do not do a good job of managing real estate assets. That said, the property crash of the early 90s turned out to be one of the most profitable episodes in the history of Spanish banking. Having got assets on the cheap, all the banks had to do was hold on until the market picked up, which it inevitably did.

The big question is, will it be the same again this time?

Story by Mark Stuckling

Spanish banks are turning into some of the biggest real estate companies in Spain, just as they did during the last property crash of the late 80s and early 90s. To a greater or lesser extent, banks are running some of Spain’s biggest listed developers, companies like Colonial and Metrovacesa, who were forced to throw...

Spain's super-rich will emerge as the key investors in its troubled property sector next year and would do well to take up positions in the office market, the head of consultants Cushman & Wakefield said on Monday.

Roger Cooke, Cushman's managing partner in Spain, said traditional investors like German property funds had the money but not the ability to open new funds in Spain, while private equity buyers were still waiting on the sidelines to swoop on distressed assets.

"I expect that in the early part of next year, Spanish private families will be the strongest investors in the market," he told Reuters in an interview in Madrid.

Spain's richest individuals, such as Amancio Ortega, the owner of Inditex (ITX.MC: Quote, Profile, Research, Stock Buzz), famous for its Zara fashion chain, have long targeted the property market and have a tradition of more hands-on involvement than others in Europe, who pass investment decisions to fund managers.

"They've got the money, yields have adjusted, they are not looking for really distressed levels of pricing, so there's more on offer," said Cooke.

Investment in smaller lots of up to 50 million euros would be the trend next year, as they are easier to finance and match the buying power of family firms.

Cooke added that office space was probably the best defensive bet in the downturn. "I suspect the office market will begin to return before the retail market. We haven't seen the last of retail sales problems, and the office market (in Madrid and Barcelona) is not oversupplied like it has been in previous cycles," he said, adding that office leases had fallen by 35 to 45 percent this year.

"I think the first half of 2011 will be quite an interesting time to be delivering a building."

Retailers' hesitancy to occupy new units and tenants pushing for rent cuts as consumer sales weaken, put pressure on shopping centre investments, he said.

Spain's 10-year residential property boom was snuffed out this year by massive oversupply, rising interest rates and the credit crunch, while the commercial business caught the same cold sweeping global property markets.

"There is a complete lack of confidence, and that applies across the board, whether it be residential, development, occupational. The whole Spanish market is very uncertain." The sector racked up billions of euros of debt in a wave of ambitious expansion, and Cooke said funding that debt while revenues shrivelled had turned almost every Spanish property firm into a stressed, though not distressed, seller of assets.

"Pretty much all have an interest in a sensible sale of assets. We are talking, quite literally, of survival in many cases."

However, the market would not degenerate into a fire sale because banks would seek to avoid loading their balance sheets with toxic debt, he said.

"The banks are not letting them sell at any price. If you get to a situation where the banks push too far, and they don't survive, is anything served by that?

"Whether we see more distressed sales next year all depends on the attitude of banks, regulators and even politicians."

Story from Reuters

Spanish property group Habitat filed for creditor protection owing €2.3bn ($2.9bn), amid signs that last-ditch efforts to rescue other developers were also in trouble.

The Barcelona-based group, created by a highly leveraged takeover two years ago, said it had taken the decision to "protect as best as possible the rights of creditors", which include the country's biggest banks.

It was forced to enter administration after failing to raise fresh funds in a cash call to shareholders a month ago. It was the country's second biggest corporate failure in the property sector this year, after market leader Martinsa-Fadesa entered voluntary administration in July with total debts of €5bn.

Yesterday's move by Habitat came as Colonial, once the country's largest developers by market value, warned in a regulatory filing that it risked default if it failed to find buyers for assets worth about €2bn.

A third company, Metro-vacesa, was locked in talks about the discounted sale of HSBC's London headquarters back to the UK bank.

It is also planning to swap debt for equity in separate negotiations with lenders in Spain.

All four developers are the result of complex, debt-financed takeovers and mergers agreed just before Spain's residential property market collapsed 18 months ago, leaving an estimated 1m new homes unsold.

House building permits for the first nine months of this year have dropped 60 per cent year on year, according to figures released this week.

The 18-month-old credit squeeze, and collapse in asset values, has further complicated refinancing efforts, while stock market turbulence has triggered margin calls in some cases.

Shares in Colonial, which two years ago peaked at €6, were yesterday trading at less then 20 cents.

Senior bankers and analysts have identified default by property companies and mortgage-holders as the biggest single threat to Spain's financial system.

From less than 1 per cent a year ago, the bad loan rate was 2.56 per cent at the end of September, according to the Bank of Spain.

Iberian Equities, a Madrid-based brokerage, yesterday estimated the non-performing loan (NPL) rate among property developers at 5.6 per cent, after accounting for Habitat and Tremón, a smaller real estate company that filed for creditor protection two weeks ago. This was set to soar, it said.

"We estimate a peak NPL ratio of 12 per cent for developers in our base case," it said in a note to clients, "leading to a system peak of 6.2 per cent".

Its worse case estimates suggest a 20 per cent default rate among property groups, and a system rate of 7.2 per cent.

Story from the Financial Times

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Many overseas property buyers are choosing to buy homes in places which offer lifestyle attractions, according to a new study.

Research by Holiday-Rentals revealed that leisure facilities are one the main considerations for people when choosing their ideal location.

More than two-thirds of second home owners stated that this was a "key motivation" behind their purchase.

Holiday-Rentals said this helps to account for the continuing popularity of Spain, a country which is currently in the midst of a major downturn.

The group added that the appeal of the country among foreign holidaymakers means it still offers strong rental potential.

Greg Grant, managing director of Holiday-Rentals, commented: "We expect to see continued growth in the holiday home rentals market, both in terms of supply and demand."

According to figures from the organisation, 31 per cent of British-owned residences in Europe are located in Spain.
 

People who have bought a second home overseas have been advised to consider the possibility of letting it out to visitors.

According to Greg Grant of Holiday-Rentals, many overseas property owners are people who have bought a residence for their own personal use.

However, the ongoing economic decline in the UK has meant that a growing number of people have become financially stretched, including those who own a second home abroad.

This has prompted Mr Grant to suggest that people ease their financial burdens by using their property to generate money.

Speaking to the Telegraph, he commented: "Those who have previously kept their homes to themselves may begin renting out to maximise income in these tighter times."

Mr Grant added that the rental yields collected in a single month could cover the cost of maintaining a home throughout a full year.

According to Holiday-Rentals, Spain is currently the most popular location among second home buyers in the UK.
 

Spain's finance minister Pedro Solbes has stunned the markets with an admission that his country faces the worst economic crisis in its history as the full effects of the property crash spread through the economy.

"This crisis is the most complex we have ever lived through given the plethora of factors on the table at the same time," he told Punto Radio in Madrid, breaking with past efforts to put a reassuring gloss on events.

Mr Solbes said the Madrid bourse had suffered an "earthquake", crashing 27pc since the start of June. He blamed the toxic cocktail of high oil prices, the global credit crisis and the sharp slowdown in the key export markets of North America and Germany.

The comments follow this week's bankruptcy of Martinsa-Fadesa, Spain's biggest corporate failure. The property developer - with an empire of housing estates, hotels, shopping malls and hotels - collapsed after failing to refinance €5.1bn (£4bn) of debts. The company's demise was a textbook story of aggressive over-expansion at the top of the cycle, driven by high debt gearing. It has €11bn of assets.

Mr Solbes has pursued a rigorous "no bailout" policy, saying Martinsa-Fadesa took "excessive risks" and must now face the consequences. He has reportedly clashed with cabinet colleagues, who are now searching for any means to stop the downward spiral in the economy.

El Pais reports that house prices crashed by 20pc in the second quarter compared with a year earlier, based on 183,000 completed transactions.

The Martinsa-Fadesa collapse has sent tremors through the whole property and construction sector. The share price of giant developer Sacyr has halved over the past month.

The two banks with most exposure to the Martinsa-Fadesa are Caja Madrid, at €900m, and Banco Popular, at €400m.

Goldman Sachs has issued "sell" recommendations on a clutch of Spanish banks, including Bankinter, Banco Popular and Banco Sabadell, warning that the sharp turn in the credit cycle could prove worse than the recession in the early 1990s. "The consumer is more leveraged today than in any of the previous cycles," it said.

The ratings agency Standard & Poor's has not yet taken a decision on whether to downgrade Banco Popular and Caja Madrid.

In reality, this is unlikely to be the worst economic crisis in Spain's history. Philip II defaulted on his sovereign debts three times in the 16th century after he bankrupted the Spanish Empire to pay for his Counter-Reformation wars against Protestants. He crippled the Italian banking system in the process - much to the benefit of London and Amsterdam.

Full story from telegraph.co.uk

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The Spanish press reports that owners and managers of Spanish property developers are worried that Martinsa-Fadesa’s bankruptcy could set off a domino effect that engulfs the sector. Various sources in the Spanish property business have told the press that more bankruptcies are now inevitable. The G-14 lobby group of the 14 biggest developers in Spain, which...

The Spanish property crisis has claimed another victim. The Valencian developer Obradis has been forced to seek protection from its creditors in the face of plunging sales and rising financial costs. With 5 developments partly sold and under construction, including its Balco de la Vila building in the popular resort town of Javea, Obradis has run...

Lehman Brothers and other investment banks, private equity firms and hedge funds are lining up to buy distressed Spanish assets as the steep economic slowdown offers investors big discounts.

Lehman has purchased stakes in distressed senior bank debt, the law firm Ashurst said recently, providing a rare glimpse of insight into the normally secretive world of such transactions.

The U.S. bank also bought stakes in a defaulted senior bank debt agreement, Ashurst said in a brochure on distressed transactions, in which investors take on parts of troubled companies at a discount.

Such deals - not normally disclosed by banks wary of showing their positions - also include the purchase by the U.S. private equity firm Apollo of a portfolio of receivables from two Spanish banks, Caixa Galicia and Banco Popular, according to Ashurst.

"We expect more nonperforming loan sales to follow," José Christian Bertram, a partner at Ashurst, said at a presentation to investors about Spain's distressed market in London last week.

Lehman, Apollo and Carval all declined to comment.

Spain has become the center of focus for Europe's restructuring bankers, such as Rothschild, Lazard, Houlihan Lokey, Goldman Sachs and Cyrus, eager for business after years of dearth in distressed deals.

"We think Spain is going to be a very interesting market for opportunistic players," said Antoine de Cockborne, an associate at City Property Investors. "This is the start of a very difficult situation. It will hit the bottom. We're looking for discounted assets."

The Spanish economy is faltering after a decade-long boom that saw house prices almost triple. Spaniards who borrowed against the rising value of their homes to buy cars and second homes are struggling to pay their bills.

The global credit crunch and record oil and food prices are squeezing Spanish consumers and forcing local shops to close down. Empty stores with "for sale" signs have become a common sight around the country.

Investors in distressed debt are also looking at firms such as Cortefiel, a clothing retailer bought by the private equity firms PAI Partners, CVC and Permira in 2005. Its debt trades at about 50 cents per dollar.

Retailers and service providers face tough times as customers leave unpaid bills. Investors may buy the bills for as little as 10 percent of face value, offering those who risk it an attractive yield.

Bank of America and WestLB bought a portfolio of receivables from Vodafone in Spain worth €190 million, according to Ashurst.

But chasing assets in Spain can be harder than investors think, because servicers - agents in charge of recovering debts - are not as sophisticated as in other countries, said Juan Hormaechea, a partner at Ashurst.

"The services market in Spain is underdeveloped; they are slow and not used to mortgages," Hormaechea said. "Some buyers buy portfolios without knowing that the servicer will become the bottleneck."

Prices are another barrier, as distressed assets may have to fall still further to attract investors.

"At the moment, we have more sellers than buyers," Bertram said.

Full story from www.iht.com

A bit of good news for once. The Spanish property sector has made some progress towards cleaning up its act, according to the latest bi-annual report on real estate sector transparency published by Jones Lang LaSalle, an international property consultancy.

In the 2008 edition of Jones Lang LaSalle’s Global Real Estate Transparency Index, which measures corruption in real estate sectors worldwide, Spain has risen two place from 18th in 2006 to 16th today. As a result, Spain is now rated 10th in Europe, and 16th in a world ranking of 82 real estate markets.

Corruption is not the only variable measured by the index, which also takes into account other factors such as legal frameworks, respect for private property, levels of professionalism, and the availability of reliable market statistics. The improved availability of information, plus greater professionalism in the Spanish property sector lie behind Spain’s rise in the rankings.

The Index, which Jones Lang LaSalle says provides a rigorous framework for comparing the level of real estate transparency across world markets, shows that nearly half of the countries surveyed in 2006 demonstrated a significant improvement in their transparency score two years later.

“Transparency levels globally are improving as governments seek to streamline regulatory and legal hurdles to aid cross-border movement of capital and corporate facilities,” says a press release from Jones Lang LaSalle. “Only Venezuela posted a lower transparency score this year compared with 2006, principally due to changes in government regulations and new taxation policies targeting foreign investors.” In keeping with historical results, Anglo-Saxon real estate markets remain the most transparent in the world. Top of the ranking are Canada, Australia, the US, New Zealand, and the UK, in that order.

Full story from www.spanishpropertyinsight.com

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The whole Royal Family turned out last Friday for the opening of the Zaragoza Expo 2008 by King Juan Carlos. Most of the government ministers, led by Prime Minister José Luis Rodríguez Zapatero, were also there. For the next three months, Aragon’s capital will be the water capital of the world, as the Expo focuses...

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