• Engel & Völkers is turning to new profitability niches in the face of the foreseeable phasing out cycle of the more traditional sectors.
• In Madrid, there is a strong demand for retail units in need of restoration in prime areas of the capital.
• 65% of Spain’s real estate purchases in 2018 were carried out by foreigners, which were 23% more than the previous year.
Barcelona, April 2nd, 2019. The Spanish tertiary sector is considered to be one of the most attractive in the world. For the fourth consecutive year in 2018, the volume of investment in residential buildings, offices, retail units, industrial warehouses, hotels and alternative products experienced a positive growth of 10% and broke the 12.3 million euros record in each of these sectors. The real estate market growth has been driven by foreign investors who made up 65% of the total purchases, 23% more than the previous year, with majority of the investors coming from the US, the UK, Germany and France. This is one of the conclusions in the 2018-2019 Commercial Market Report of Spain and Andorra prepared by Engel & Völkers. "
The logistics sector will maintain its upward trend before the unstoppable growth of electronic commerce," confirms Alberto Sarrias, the director of Engel & Völkers Commercial for Spain, Portugal and Andorra, while highlighting the new investment opportunities arising within a mature market. Sarrias gives as an example "the diversification registered in the office sector shows there is a growing demand in peripheral areas, as well as coworking spaces in the centre of large cities." "The interest of investors in new profitable niches in the view of the foreseeable cycle depletion in the traditional sectors will be decisive", according to Sarrias’ opinion, who predicts that the good performance of alternative products, such as residences for the elderly and students, will continue.
Similarly, the retail market will appreciate even more due to the strong development of multi- channel commerce. The result of this growth has led to a total redesign strategy for the most important brands of our country, mainly the ones that operate their retail business in large stores and flagship located in highly central locations, thus leading to a disinvestment in the most secondary areas.
Retail is going through reinvention and its growth goes hand in hand with the arrival of large retail operators, such as Ikea or Media Markt, in the main streets of the cities. Along with these retailers, the demand for restoring large international firms and new national chains is strongly resurfacing.
The growth of Madrid’s tertiary sector has been marked by the increase in demand for retail units that are to be used as catering establishments, mainly in prime areas where demand is becoming scarce. The profitability ranges between 4% and 6%, depending on the profile of the tenant, as well as the location of the retail unit. Thus, in the most sought-after neighbourhoods of Salamanca, Chamberí, Sol, Chueca-Justicia and Malasaña, there is a great rental price difference between the primary and secondary streets. While the first ones record maximum prices of 90 euros / sqm, in the secondary ones, the rental price falls to 55 euros / sqm, and outside Madrid’s central almond, it is 45 euros / sqm. For its part, the office market has been marked by the demand for higher quality spaces and new-build units. Paseo de la Castellana continues being the most sought-after area, and there is a great fluctuation in rental prices according to the section and the type of building the office is located in. The Central Business Area has reached a maximum of 45 euros / sqm. In terms of the outer part of the building, the importance is not on the street the office is located in, but the fact that it must be accessible via the main routes of the motorways, M-30, A-1, A-2 and M-11.
This year, Barcelona’s office market will see the return of an increase in demand for rental office spaces by foreign companies, especially in the digital-technology sector. It is foreseeable that the prices in the central areas will increase due to the lack of supply, especially in business districts, such as the 22 @ area where the most sought-after are office floors and complete office buildings. In the retail sector’s division, the roads with the highest demand and with the highest prices are the busiest ones. These are concentrated in Ciutat Vella, Tapinería and Eixample, where average prices range between 30 and 40 euros / sqm per month. For its part, in offices, the best investment is in modern buildings that start from 500 sqm and new-builds, due to the high demand for this type of product. The highest prices for rent are located in the streets, such as Passeig de Gràcia, where the most elegant offices are located in stately buildings with an average price of 50 euros / sqm per month.
The demand for retail units in Bilbao is led by the hospitality firms that are going through expansion. The demand from investors is focused on central areas, where they have an immediate profitability of around 6% per annum. The most sought-after street is Ercilla where the maximum prices can exceed 100 euros / sqm per month since this street has traditionally been home to the best shops in Bilbao. The price increase in this emblematic street originates from when it became pedestrianised, and because of the lack of retail unit supply in the prime area of Gran Vía, Ercilla became the alternative option. Press Release Gran Vía is also the most sought-after area to rent an office in Bilbao. The maximum price in this street can reach 50 euros / sqm per month for office spaces under 80 sqm. The profile of the office lessee in Bilbao is drawn mostly by private professionals who need a good location and are seeking relatively small spaces. However, rentals have been taken up this year by multinational companies and start-ups, as well as clinics.
The profitability of the tertiary sector in Vigo has reached 5%. The area with the greatest demand for retail units is the Urzáiz-Príncipe axis and Praza de Compostela. It is in Príncipe Street where the highest prices in the city are reaching 7,000 euros per month for a rental of a local unit, a figure that doubles in Casco Vello and Plaza de España, where the maximum is at 3,000 euros. As for offices, it is worth mentioning Colón Street as the most expensive place to rent with prices that are around 2,500 euros per month. In fact, at the end of last year Engel & Völkers collaborated with the multinational audit and consultancy firm, Grant Thornton, with the launch of its first ever office in Galicia.
The Andorran market has shown high returns even during the economic crisis years. For 2019 and on the basis of this historical performance, an increase is once again expected in the different divisions of business activity in the tertiary sector. Some of the most outstanding assets in the Engel & Völkers’ portfolio are plots in privileged locations and renowned hotels, all of them with great potential for increasing in value. The profile of the buyer and the tenant, for retail units and offices, hotels, industrial buildings and residential buildings, are comprised of entrepreneurs, foreign companies that are located in the Principality, and local clients. In Andorra la Vella, Meritxell Avenue is the most sought-after area with prices that can reach 300 euros / sqm for retail units. In the district of Escaldes-Engordany, the most popular is Carlemany Avenue, where the units reach up to of 90 euros / sqm per month and offices up to 30 euros / sqm per month. This parish is also one of the most expensive for renovation buildings with prices of up to 3,000 euros / sqm.
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