After 2022 investment volume record (post Covid-19 effect), Spanish Real Estate investment in H1 2023 stood at €4.4 billion (-52% vs H1 2022), affected by the increase in interest rates and the higher uncertainty existing in the capital markets.

Interest rates, with the rally initiated in H2 2022, have reached levels not seen in 15 years, heavily increasing financing costs and leadingto a price gap between assets’ buyers and sellers. Financing is no longer seen as a commodity and investors have to be creative and work harder in order to achieve their required returns (i.e., complex optimal capital structures). Consequently, yields have increased in all sectors (100-225 bps since its minimum in 2021). In our view, we have already seen most of the correction (or at least c. 90% of it).

Asset owners are reluctant to sale large portfolios / assets due to the more reduced buyer’s demand and financial constraints, resulting in preference for transactions of €10-60 million. Investors with no need of debt financing are now being more relevant. Joint ventures among investors are also emerging due to their convenience for optimal growth without the need of increasing ‘structure’.

Correlation between prime yields’ increase and rents’ decrease is not seen,as rents are increasing and,in some demanded prime assets, reaching maximum levels.

The Hospitality sector, driven by strong fundamentals (ADR’s, Occupancy), has been the most active during H1 2023, reaching an investment volume of €1.4 billion (32% of total real estate investment).

The Living sector reached €1.1 billion investment, representing 25% of the total real estate investment in H1 2023. With the multifamily sector representing strong potential, investors’ preference is driven to operational assets. Rents are in maximum levels, underpinned by inflation growth.

The Office sector reached c.€720 million investment in H1 2023 (-35% vs. H1 2022). Assets already leased are highly attractive for investors, but price gap between supply and demand and rising interest rates have limited the transacted volume.

The Logistic sectorattracted €630 million in investment (14% of total). Despite the take-up growth decrease due to a longer decision-making process, demand for logistic space remains strong. Increase of sale and leaseback transactions.

Retail achieved an investment amount of €365 million (-69% vs. H1 2022). Retail parks led the investment, growing by 17% vs H1 2022 to €145 million.In the high street,leasing activity surpassed H1 2022 by 4.5%, which has translated into very low vacancy rates in prime areas (4.5% in Madrid and 5.2% in Barcelona).

Senior Living closed H1 2023 with €160 million oftotal investment, constituting a 4% of the total investment volume. Elderly population growth is expected to keep an upward trend in demand for this sector.

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