Spanish Market Outlook 2024
Despite the high rise in interest rates, which has led to a decline in investment, real estate assets have remained attractive. It is expected that by 2024 prices will continue to adjust and that investment will start to recover from the second half of the year onwards thanks to a gradual fall in interest rates.
The limited availability and high cost of financing are expected to impact sales activity, as companies strive to unlock capital through selling and subsequent leasing. Concurrently, funds face redemption pressures, and investment platforms require additional capital. Rising interest rates will exacerbate the debt gap, creating demand for alternative sources of capital.
In 2023, economic activity in Spain and southern Europe has been propelled by an excess of domestic capital, contributing to a gradual adjustment in yields. Value-add strategies are dominating the capital allocation landscape in the EMEA region, with approximately 30% of investors selecting this approach as their primary focus for 2024. Core-plus and opportunistic plays each represent around 20% of the preferences.
Investors continue to express significant concerns about inflation and interest rates at the macro level. The pricing of assets is seen as needing to adapt to new ‘higher norms’ before a substantial increase in core investment activity can gain traction.
While there is a growing realization that the negative sentiment surrounding the office sector may be exaggerated, investment is consistently increasing for the industrial and logistics (I&L) sector. Investors are gravitating towards this sector due to its perceived greater stability and growth potential. Despite a relatively limited supply of new space globally, there are emerging pockets of new stock in specific locations, particularly in the U.S. Nevertheless, the global supply of traditional I&L products remains restrained, increasingly falling behind the escalating demand from investors. Consequently, investors are shifting towards growth sub-sectors such as light industrial, manufacturing, and cold/dark storage. In some instances, investors are forming partnerships to directly develop products, especially for data centers. Europe is at the forefront of setting regulations to incorporate ESG considerations in the constructed environment. However, due to the global nature of investments, standards are being elevated universally. Different market surveys indicate a growing recognition that ESG plays a crucial role in strategic investment decision-making, particularly in the EMEA region. The percentage of investors transitioning to ESG-based disposal and acquisition strategies has surged to 25%, compared to a mere 10% two years ago. Consequently, a wave of property disposals and opportunities for value addition is emerging, with investors mobilizing capital for the transformation of existing assets from brown to green.