Secondary markets in Spain are attractive for investors targeting different asset classes, from logistics to retail to alternatives, delegates heard at the Iberian Investment Briefing, organised by Iberian Property and Real Asset Media, which was held in London recently.
Investors risk missing good opportunities if they do not explore the road less travelled. ‘Secondary markets still need to be explained and we are working on spreading the message,’ said Javier Martín, Senior Portfolio Manager, Spain, Nuveen Real Estate. ‘Among some investors there is still a certain resistance to go to secondary markets.’
The logistics sector is a good example because there is a lot to do. ‘In places like Valencia, Seville or Bilbao there is virtually nothing there,’ he said. ‘There is a lot of outdated stock so extensive modernisation is needed. In some places, like Toledo, there are some good quality developments taking place. We were among the first to buy warehouses in Valencia, but now others are following in our footsteps’.
Student housing is another example, as there are many excellent University towns in Spain which offer opportunities in this fast-growing sector.
‘We did not want to have a presence just in Madrid or Barcelona, but in places like Salamanca and Seville as well,’ said Audrey Klein, Managing Director International Institutional Clients, Corestate Capital Group. ‘The two big cities will always be popular, but demand in secondary cities is picking up and places like Valencia are really booming’.
Retail is another sector where the Spanish story does not fit into the typical European mould. ‘It can be difficult to explain quite how different retail is in Spain,’ said Hernán San Pedro, Head of Investor Relations and Corporate Communications, Lar España. ‘Many places have no quality retail offer, so there are a lot of opportunities out there. Last year we bought an asset near Valencia, which is fully let, and we are in the process of buying another in Seville’.
There is a very low density of commercial space in Spain compared to other countries: 1 m2 per thousand inhabitants, compared to 5 m in the UK and the US. There are a total of 500 shopping centres or retail parks in the country and e-commerce penetrations is growing, but remains very low by European standards.
Retail assets in secondary locations can have discounts to NAV of up to 70%, San Pedro said, so ‘investing in them helps us keep our commitment to our investors to maintain leverage levels low and it’s a profitable choice that delivers yields of 6% to 8%. We improve the value of the asset by delivering a combination of physical, digital and customer experience’.
The strategy is ‘to create a dominant portfolio and become a winner’.
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