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Outlook 2021: Iberian light continues to shine through crisis

Spain and Portugal have been hit hard by the pandemic, but deals have continued as foreign investors adapted.

Spanish and Portuguese real estate’s appeal to international investors has been undimmed by the pandemic, experts told Real Asset Insight at last month’s online Outlook 2021 event.

“The level of investor interest in Spain and Portugal has been huge,” says Rodrigo Cortés, head of fundraising and client development at investment manager 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.” 

Fundraising 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,” adds Cortés. “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 it was after the GFC more than a decade ago.

Changing perceptions

“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 explains. “But most importantly, the perception has changed. Very few investors now don’t have Iberia in their portfolio.”

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.

An industrial asset owned by Merlin Properties in the Sollana industrial area of Almussafes, near Valencia. Although Merlin is exploring complementary businesses it continues to invest heavily in logistics


“Iberia used to be a market in which you chose to invest, but now it’s a market in which you have to invest,” says Francisco Sottomayor, CEO of investment manager 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 at 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,” says 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.” 

Opportunity to refocus

The pandemic has caused turmoil but it can be a chance to reassess the situation and devise new strategies. “It has been disruption on a grand scale, but now real estate is engaging with people like never before,” says José Manuel Llovet, CEO of commercial real estate at Grupo LAR. “It’s an opportunity to refocus, especially as we have fantastic digital tools, data and information now at our disposal to understand customers and tenants better.”

This has helped even in a sector like retail which had been in crisis mode for a while and was then badly hit by the pandemic.

“When it comes to retail we’re still on a winding road – there’s not much visibility ahead,” says Llovet. “We have supported our tenants in shopping centres that have been closed for a long time, but other segments like food retail have seen two-digit increases in turnover and a lot of transactions.”

Grocery and other essential retail has shone through during the crisis. Eroski has sold and leased back portfolios to WP Carey and Pradera


Retail parks have also done well and had recovered by the end of 2020, partly because most of the tenants are big omnichannel companies that have invested a lot in their businesses and are more resilient.

While retail has its strengths and weaknesses, the crisis has definitely cemented the status of logistics as a core investment.

Logistics in demand

“Logistics is in great demand, and retail assets can easily be turned into last mile delivery hubs,” says Pedro Coelho, chairman of Square Asset Management. “We expect a quick economic recovery after the vaccination programme and a return to the old normal. Even hospitality, which has been badly affected in Portugal, and retail, which has suffered less than 
in Spain, will recover much faster.”

The pandemic has also led to a blending of businesses and a creative use of spaces. “We’re integrating all of our activities and looking at complementary businesses, running last-mile deliveries out of office buildings or shopping centre parking lots after opening hours,” says Merlin’s Brush. “We are the biggest logistics operator in the Iberian peninsula and we have a big pipeline of projects because we still like the sector.”

‘Most capital is being deployed in core and core-plus. That’s a sign that we are in better place compared to the GFC, when investors were just looking for distress.’ 

Rodrigo Cortés, Azora

Some trends, like the decline of retail and the rise of logistics, were already evident but have been accelerated by Covid-19, while some are new trends that are emerging and are still difficult to read. 

“Residential is the one sector where we don’t see an acceleration of existing trends but rather the emergence of a new trend, brought on by the shift to remote working,” says Norfin’s Sottomayor. “It’s a huge opportunity for Spain and Portugal to attract people to move there to live, not just pensioners but working-age people. The market can be expanded hugely.”

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