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Wednesday 27 August 2014

Demand for Spanish shopping malls up as consumers return

Charles Penty and Sharon Smyth

Published 12/06/2014 | 02:30

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A customer inspects garments hanging from a rail in a Cortefiel SA store in Majadahonda, near Madrid, Spain. Photo credit: Angel Navarrete/Bloomberg

AFTER a six-year slump, demand for Spanish shopping malls is showing signs of picking up as buyers bet that more consumers will return.

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Purchases of large-scale retail complexes may reach as much as €1.5bn this year as investors anticipate a recovery in consumer lending, said Gema de la Fuente, an analyst at real estate agent Savills in Madrid.

That's at least 10 times more than in 2012.

Growth in Europe's fifth-largest economy is gaining momentum, kindling consumer demand by creating jobs and allowing the government to ease the toughest austerity measures in more than three decades.

Spanish borrowing costs have dropped, with yields on 10-year government bonds last week hitting their lowest since 1993.

"The value of retail property is heating up," said Andres Escarpenter, real estate broker JLL's chief executive officer for Spain, who estimates the price of stores in the swankiest districts of Spanish cities jumped as much as 15pc over the past year. "Investors are also starting to factor into the pricing a recovery in consumption."

Banks are getting ready to finance the upturn in consumer demand as the cost of covering their bad loans begins to abate.

Banco Santander, Spain's largest bank, bought a controlling stake in the finance unit of El Corte Ingles, the largest retailer, while Banco Popular Espanol is seeking to buy Citigroup's Spanish business.

CaixaBank and Bankia, the third and fourth biggest banks, say they are already starting to ramp up consumer lending. FinConsum, the consumer credit arm of Barcelona-based CaixaBank, boosted lending by 40pc last year.

An April survey on lending conditions published by the Bank of Spain showed banks have relaxed the criteria for approving consumer loans for the first time since 2010.

The recovery in consumer demand is still far from clear-cut with the data for retail sales still ambiguous, said Israel Casanova, managing director for Spain and Portugal of Redevco, an Amsterdam-based property management company that specialises in retail premises.

Sales rose an annual 0.1pc in April, down from growth of 0.4pc in March, and they shrank 0.3pc in February, according to statistics office INE.

National Association of Financial Credit Establishments chairman Oscar Cremer said a sustained recovery in credit probably wouldn't come till 2017, when the economic recovery has created more jobs and given impetus to the housing market.

"It's still far too early to say if the recovery is really solid but there does seem to be confidence," Mr Casanova said.

Household spending overall grew 0.4pc in the first quarter from the previous three months, helping economic growth in the period to accelerate to 0.4pc in the final quarter of 2013, INE said on May 29.

Unemployment reached 27pc, driving retail sales down for 38 consecutive months through September last year, according to INE. The process drained €47bn of loans from the Spanish economy as consumer lending slumped 44 pc from mid-2008, according to the ECB.

A fund managed by Orion paid €144.5m in October last year to buy the 50pc stake it didn't already own in Puerto Venecia, a 890,000 sq ft retail park in Zaragoza, Spain, from British Land. The deal added to Orion's purchase in 2009 of Plenilunio, a mall in Madrid where the company has a waiting list of retailers and may be able to raise rents in the future, said Aref Lahham, a founding partner at London-based Orion.

"We basically thought that it was good to own dominant shopping centres which are very resilient in the downturn," he said. "Dominant malls go from strength to strength as secondary malls die and you can capture their market share."

Intu Properties Plc, the UK's biggest shopping mall owner, teamed up with Canada Pension Plan Investment Board to buy Parque Principado, an 800,000 sq ft mall in Asturias.

"What we're seeing now is people that were previously invested in other sectors such as offices or warehouses are now looking at retail space – especially if it's premium," said Angeles Perez, director of high street retail at JLL in Madrid.

"There's a clear trend for investors repositioning themselves for a recovery in consumption."

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