Logistics will be the top-performing sector in Spain and Portugal, delegates heard at Real Asset Media’s Iberian Investment Briefing, which was held online recently.
‘Iberian logistics is extremely well positioned, with prime total returns above the European average and urban stock expected to record strong rental uplift,’ said Simon Wallace, Global Co-Head of Alternatives Research & Strategy, DWS. ‘Lisbon will be the top performer, followed by Madrid and Barcelona’.
High demand and lack of supply, especially in light industrial and last mile, are behind the positive outlook for the sector.
‘The fundamentals of logistics are very positive and we see values holding up, but there are big challenges ahead in the sector,’ said José Manuel Llovet, General Manager of Retail, Offices & Logistics, Grupo LAR. ‘More investments in AI and technology are needed to reduce costs and improve margins, which are tight. Rents are increasing, but too slowly’.
Spain has been lagging behind Northern European countries in e-commerce, but the lockdown has accelerated the online shopping trend and the country is now expected to catch up within the next three years.
There is one note of caution. ‘E-commerce has accelerated and vacancies are very low, but it is still very important to underwrite tenants,’ said Wallace. ‘A lot of logistics is connected to retail, so there is a vulnerability there’.
The epidemic will lead to a sharp differentiation between winners and losers, said Llovet: ‘Retail is a challenging sector now and the negative sentiment is difficult to change. We forecast an impact on values and a polarisation between the bad and the good’.
There will be a segmentation of the market as the good shopping centres do well while the others face a long period of adjustment.
‘I agree that the best retail will continue to have a role, but it will need additional capex to adapt to customer needs,’ said Wallace. ‘The best shopping centres will do well, even the regional ones’.
Early signs after the re-opening of shops point to a positive picture. ‘We have seen a 25% reduction in footfall but sales have fallen only by 5-10%’, said Llovet. ‘It seems the customers are more focused and willing to buy’.
The feeling among market experts is that valuations will suffer in the short term in Iberia in all sectors. According to a snap poll done by Real Asset Media, 67% of respondents believe valuations will not return to December 2019 levels until December 2021 at the earliest, while 31% think it will be June 2021.
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