Investing in Iberian real estate ‘has become a must’

Spanish and Portuguese real estate’s appeal to international investors has been undimmed by the pandemic, experts agreed at Real Asset Media’s Outlook 2021 – Iberia briefing, organised with Iberian Property, which took place online yesterday.

“The level of investor interest in Spain and Portugal has been huge,” said Rodrigo Cortés, head of fundraising and client development, Azora. “Spain alone attracted €8 billion in investment in 2020, much higher than expected. I had more enquiries between March and April last year than I had in the six months before, when I could travel freely.”

Fund-raising was successful and the capital came from “strong institutions” that have confidence in the market’s prospects and are looking for long-term returns.

“Most of the capital is being deployed in core and core-plus and much less in value-add and opportunistic,” he said. “That’s a sign that we are in a much better place compared to the GFC, when investors were just looking for distress.”

The pandemic has hit Iberia hard and the economy is still feeling its negative impact, but the crisis is much less severe than after the GFC over a decade ago.

“The authorities have reacted more quickly and in a more coordinated way, there is less leverage in the market and investors are still interested,” Cortés said. “But most importantly, the perception has changed. Very few investors now don’t have Iberia in their portfolio.”

Iberia now a market where you have to invest

That perception is crucial, as deploying capital in the region has become almost a must for any investor who is serious about European real estate.

“Iberia used to be a market in which you chose to invest, but now it’s a market in which you have to invest,” said Francisco Sottomayor, CEO, Norfin. “We see evidence of this on a daily basis.”

The combination of government support measures and a wall of capital ready to be deployed has contained the damage.

“There has been very little distress outside of retail, which has been surprising,” said David Brush, chief investment officer, Merlin Properties. “Everyone’s holding on, thanks partly to low interest rates and partly to government action, so there’s very little distress for the opportunistic guys to exploit.”

Deals were done in the middle of the lockdown in both Portugal and Spain, and foreign investors adapted quickly to the new way of doing things.

“People have adjusted to making contact via video and doing due diligence and finalising deals without being able to travel,” said Brush. “There was no advantage to being a domestic investor from that point of view, but in times of uncertainty it’s easier to get clarity when you are on the ground and can observe how each market is impacted differently. You just can’t have a broad-brush approach from abroad.”