REAL ESTATE REPORT 2007

Transcription

REAL ESTATE
REPORT
2007
TRENDS 07
07
TRENDS
REAL ESTATE REPORT
OFFICES IN SPAIN
CB RICHARD ELLIS S.A.
MADRID
PALMA DE MALLORCA
Edificio Torre Picasso
Planta 27
Plaza Pablo Ruiz Picasso, 1
28020 Madrid
Tel.: +34 91 598 19 00
Fax: +34 91 556 96 90
[email protected]
Avda. Comte de Sallent, 2
esquina 31 de diciembre
07003 Palma de Mallorca
Tel.: +34 971 45 67 68
Fax: +34 971 45 68 98
[email protected]
MÁLAGA
BARCELONA
Edificio Testa Diagonal
Avda. Diagonal, 605, 8º-1ª
08028 Barcelona
Tel.: +34 93 444 77 00
Fax: +34 93 419 02 85
[email protected]
Edificio Málaga Plaza
Don Cristián, 2-4
Planta 1ª, ofic. 2
29007 Málaga
Tel.: +34 95 207 07 10
Fax: +34 95 207 17 05
[email protected]
VALENCIA
MARBELLA
Paseo de la Alameda, 35 bis
3º dcha.
46023 Valencia
Tel.: +34 96 316 28 90
Fax: +34 96 316 28 91
[email protected]
Edificio Golden
Avda. Ricardo Soriano, 72
Planta 1ª
29600 Marbella
Tel.: +34 95 276 51 30
Fax: +34 95 276 58 30
[email protected]
ZARAGOZA
Paseo de la Independencia,
21, 1º centro
50001 Zaragoza
Tel.: +34 976 48 46 35
Fax: +34 976 48 46 33
[email protected]
4
CASABLANCA
(MARRUECOS)
190, Boulevard d’Anfa
Étage 2
20000 Casablanca
Marruecos
Tel.: +212 (0) 22953250
Fax.: +212 (0) 22364238
[email protected]
1
3
SIGNATURES
page 8
MARKETS
AND IDEAS
5
2
BAROMETER
page 20
4
page 32
page 68
NATIONAL MARKET
6
PIECES page 98
INTERNATIONAL
MARKET page 58
Trends 2007
5
NEW
SCENE
SERGIO ACEREDA
Director of Marketing and Communications
CB Richard Ellis Spain
6
The market is calling for new solutions
The publication of this year’s Trends
report almost coincides with a new
cycle in the property market.
In Spain it is evident that the
residential market is the reason for
this new cycle which in one sense
has closed opportunities, but at the
same time has opened up others. We
still don’t know what to call it (are
we facing a crisis or a cooling down
of the market? Has the bubble burst?)
what is for sure is that the market is
calling for new solutions, new focus
areas and innovative approaches.
If we look at the international
market, uncertainty has been
the overriding factor since last
summer, when turbulence in
the financial markets and the
shake-up of the mortgage sector
made their presence felt on stock
exchanges around the world.
Be that as it may, at CB Richard
Ellis, thanks to our priveliged
position as leaders in the
property consultancy and
services market, we have an
obligation and responsibility
to “guide” our clients and also
institutions, organisations and
public opinion in general in this
new era that has already begun.
In the following articles, the
reader will be able to find
information that will be helpful
in getting to know this new
environment better. There
are articles from experts on
specific markets, but also
personal reflections, experiences
and commentaries from
highly qualified persons and
professionals on both a national
and international level.
The 2007 edition of Trends
is the seventh edition and is
structured, as on previous
occasions, with different articles
and contributions, its aim is
to give a genuine, trustworthy
and at the same time, global
vision of what is happening in
the Spanish property market
today. We have also included a
market survey on the perceptions
and intentions of companies,
which yet again a large number
of companies in the sector took
part in. We would especially
like to thank them for their
participation.
these figures will affect the
market in the medium term.
Trends also delves into the
markets qualitative perception
of the market: looking at what
feelings and experiences this
new era is producing, analysing
new ways of looking at old
problems, and also at CB Richard
Ellis’ own experience when
looking at the short and medium
term future.
In 2008 CBRE celebrates 35 years
of doing business in Spain. We
have grown with our clients
in this process, (companies
who today are now leaders on
a national and international
level), combining a long term
vision with short and medium
term actions. Also we have
successfully learnt to focus on
good times and not such good
times. We have learnt from both
our successes and failures and
will continue to do so. It is from
this perspective that we present
Trends 2007.
A good start and a good solution
begin with good information.
Once again, our goal has been to
give our readers, clients, friends
and collaborators an analytical
tool that allows them to do just
that: to lay the foundations for a
good start.
Aside from this, in this edition
of Trends we go beyond just
providing data and figures, and
take an in depth look at how
and innovative approaches
Trends 2007
7
Experts typically say that
your market is your data
base. In times of uncertainty,
focusing on the client is a
good strategy.
8
SIGNATURES
1
Trends 2007
9
THE SUCCESS
INTERSECTION
As the articles that follow
will clearly demonstrate,
there are many aspects of the
Spanish property market that
are driven by the domestic
economy, local market
structures and conditions.
MIKE STRONG
President
CB Richard Ellis EMEA
10 SIGNATURES
Equally, as one of the major
European property markets,
Spain is also affected by
broader international trends
and influences that shape the
decisions of landlords, tenants
and developers. Understanding
the interplay between
international – sometimes global
– influences and more local
factors is critical to making fully
informed property decisions.
Starting with economic
factors, European economies
have generally performed
strongly in 2007, with the most
recent view from Consensus
Economics indicating growth
of around 2.8% across the EU
economies in 2007. A number
of economies - including Spain,
but also including the Nordic
markets and Ireland - will have
seen growth above this level,
with the Spanish economy in
particular likely to have grown a
full percentage point faster than
the EU average in 2007. This
growth has been mainly driven
by the strength of household
European economies have generally
consumption and, to a lesser
extent, capital investment:
growth in both is now starting to
ease but the Spanish economy
should still grow by more than
2.5% in 2008.
One of the most remarkable
features of the European
property markets in recent
years has been the explosive
growth in the investment
market. From a total of just
over €100bn in 2004, the
turnover of the European
commercial investment market
reached €227bn in 2006.
Total investment turnover in
European commercial real
estate in 2007 reached an
estimated €236bn (another
record year despite a relatively
slower fourth quarter).
The contribution of office
investment to this total has been
rising, and accounted for 58%
of the first half total, driven
in part by the completion
of a number of very large
transactions in key markets
such as London and Paris.
In aggregate terms, the Spanish
investment market has seem
comparable trends, with
investment turnover reaching
€4.8bn in the first half of 2007,
20% up on the first half of
2006, with a further €1.4bn
invested in the third quarter.
This growth has come about
despite a reluctance to sell
on the part of some owners
due partly to the perceived
difficulty in reinvesting. An
important source of investment
stock in recent months has
come through the disposal of
corporate real estate by large
corporations looking to release
capital and focus on core
business. Property companies
and collective investment
vehicles of various kinds have
been the main buyers.
The office and retail sectors
have dominated Spanish
investment activity to an
even greater extent than for
Europe as a whole. However
the two sectors do show
some substantial geographic
performed strongly in 2007
ONE OF THE MOST
REMARKABLE FEATURES OF
THE EUROPEAN PROPERTY
MARKETS IN RECENT
YEARS HAS BEEN THE
EXPLOSIVE GROWTH IN THE
INVESTMENT MARKET
differences: office investment
has been heavily skewed
towards the Madrid and
Barcelona markets alone,
whereas retail investment has
been much more evenly spread,
with both multi-city portfolios
and some provincial shopping
centres being traded. Examples
of major transactions over this
period include GMP’s purchase
of four Madrid office buildings
from BBVA for €700m; the
acquisition of the Telefonica
HQ in Barcelona by the Carlyle
Group for €225m; and British
Land’s purchase of the Nueva
Condomina in Murcia for
€340m.
The profile of buyers also
highlights some interesting
contrasts between Spain and
the overall European picture.
A major component of the
growth in investment activity
across Europe has been the rise
of cross-border investment,
including greatly increased
activity by non-European
investors. The first half of
2007 was the first time nondomestic buyers had accounted
Trends 2007
11
THE SUCCESS INTERSECTION
for more than half (57%)
of all European investment
transactions by value, and
nearly half of these were
purchases by non-European
investors. It is here that the
Spanish market displays
some important differences
against the wider trends :
Spain remains dominated by
domestics purchasers, who
accounted for around 55% of
purchases in the first half of
2007. Where overseas investors
have been active in Spain,
their focus has largely been on
the shopping centre market,
with limited involvement
12 SIGNATURES
MIKE STRONG
President
CB Richard Ellis EMEA
in office acquisitions: of
the top ten European city
investment markets, Madrid
shows comfortably the lowest
incidence of overseas purchases.
Reflecting the broader European
picture, investment yields have
been relatively stable in 2007
after a long period of downward
pressure. Madrid in particular
has seen prime yields for offices
and high street retail units static
at 4.25% through three quarters
of 2007, with shopping centres
trading at 4.75%. Barcelona has
seen some further tightening
in yields in some sectors, with
prime office and shopping
centre yields down to 4.25%
and 4.75% respectively.
Office occupier markets across
Europe have been generally
robust in 2007. Through three
quarters, the major markets
In Spain, non-European investors only
recorded total take-up of
around 7.5m sq m, 10% ahead
of the same period last year.
Improvement in several of
the German markets made a
particular contribution to this
picture.
Against the backdrop of a
strongly-expanding economy,
the major Spanish markets have
also healthy levels of activity
in the leasing markets. Leasing
activity in Madrid has been
running at similar levels to
those recorded in 2006 (which
was an all-time high), although
the second and third quarters
were discernibly slower than
the first three months. Take-up
in Barcelona will, similarly,
come close to last year’s level
and it is notable that both
markets are seeing rising
activity in peripheral districts
outside the CBD. Vacancy rates
in both cities lie below 6.5%,
and prime rents have been
rising, markedly so in Madrid
where office rents rose by over
20% in the year to September
2007, well ahead of the 9%
recorded across the EU-15 as
a whole over the same period.
In response to recent rental
growth, development activity
is now growing sharply in both
cities, and growth rates are set
to ease as a result.
In other respects too, a tougher
market environment lies ahead.
European economies are likely
to grow more slowly in 2008
than they did last year, and the
possibility remains that the
current credit squeeze could
induce broader adverse effects
on economies and corporates.
While the market numbers
remain robust, we are already
conscious of some European
companies adopting a rather
more cautious approach to real
estate commitments. In the
investment market, increasing
constraints on the availability
and cost of debt finance will in
all likelihood reduce transaction
volumes for a time. Investment
performance will again come
to be driven by property
fundamentals, such as rental
income growth, rather than by
yield shifts. In these conditions,
detailed understanding of
markets and rigorous investment
selection become critical.
Even in difficult markets,
opportunities will arise for those
able to spot and act quickly on
emerging trends.
seem to consider commercial assets
INVESTMENT TRENDS WILL
DEPEND ON THE REVALUATION
OF THE LEASING PRICES
Trends 2007
13
MANAGEMENT
IN UNCERTAIN
TIMES
EDUARDO
FERNÁNDEZ-CUESTA,
President
14 SIGNATURES
It is clear that we have
entered a new phase in
the market, characterized
by a general sense of
greater uncertainty.
Already in the real estate sector,
this is translating into a sharp
drop in residential sales, greater
difficulty in financing land and
large projects, and a marked
slowdown in decision-making
due to the more rigorous
analyses of transactions,
especially those of significant
size. Nevertheless, we continue
to move forward.
From the perspective of a firm
such as ours, these situations
are twofold: on the one hand,
there is the internal point of
view which demands that we
adapt to the new scenario, as
is characteristic of a real estate
company. On the other hand,
inherent in our responsibility as
a professional service provider,
in moments of uncertainty, we
are duty-bound to guide our
clients and the sector as a whole.
Therefore, I believe that the
best recommendation we can
make to our clients and to those
companies (that are not clients)
who follow our lead is to reflect
upon what work must be done
in order to deal this new phase.
In summary, our general
proposal is based on the
following points:
Clients cling to brands that communicate stability,
FOCUS ON THE CLIENT
Experts typically say that your
market is your database. In
times of uncertainty, focusing
on the client is a good strategy.
The loyalty of our own clients
has been crucial at a time when
acquiring fresh clientele is more
complex and more costly. But
what is loyalty? We believe it
is based on an intimacy with
our clients, in order to better
understand their needs, to
anticipate their difficulties
and be a part of the solution. I
think that this method applies
fittingly to real estate market
clients in times like these,
whether they be residential or
tertiary.
At CB Richard Ellis we have
already begun to analyse clients
global strategies, but we have
also initiated precise measures
which enable us to offer a
better service: the formation
of interdisciplinary teams to
provide global perspectives to
concrete problems, and greater
support for our international
network, are but two examples
among many that we are
currently implementing.
We have already begun to
create an internal mechanism
of coordination which allows
us to be more effective and
more efficient when identifying
and developing international
opportunities for our clients.
IN THESE UNCERTAIN
TIMES, WE AT CB
RICHARD ELLIS, MORE
THAN EVER ENCOURAGE
THESE PROCESSES OF
INNOVATION, WHICH
FROM OUR POINT
OF VIEW, RELATE TO
DIVERSIFICATION
those that represent prestige, sound performance, and security
Trends 2007
15
EDUARDO
FERNÁNDEZ-CUESTA,
MANAGEMENT IN
UNCERTAIN TIMES
President
Our objective for the coming
years is to base a large part of
our revenue in international
business, and today, in a
situation of considerable
uncertainty, we are laying the
foundations for this task.
Our job is to form long-term,
enduring relationships with
our clients. To that end, and
in addition to providing the
best service possible, we must
strive to be imaginative and
effective for the business to
move forwards and on behalf of
our clients.
INNOVATION: R+D
Perhaps the difference between
those who lead and those who
follow lies in the amount of
risk one is willing to assume
in a specific circumstance or
moment, – but also how we
apply that risk in order to
continually grow. The result is
innovation. In these uncertain
times, more than ever, we at CB
Richard Ellis, encourage these
processes of innovation, which
from our point of view, relate to
diversification: new and better
services in new geographical
areas.
It is only normal that at times
we may feel more insecure or
less sure of our footing, but it
is vital that we come out on the
other side of this current phase
feeling stronger than before.
Crises pass. Businesses can
also pass too. Clearly, as a
situation declines, we must
stop and reflect upon where we
are headed, think about how
we can improve, and apply the
necessary tools to moderate
the circumstances. Rather than
wasting time during this crisis
with “positive thinking,” we are
focusing on improving
the outcome.
A new way of relating to our
clients, new ways of marketing
products, encouraging
imaginative, effective, and
useful solutions are a few
examples of how innovation can
help us position ourselves for
medium and long-term success.
THE ANSWER LIES WITHIN
A while back the experts began
talking about the importance of
human resources strategies in
the organization of successful
business development plans. In
a professional services firm like
CBRE, with an international
16 SIGNATURES
Our job is to form long-term
market profile, finding and
retaining talent is a key aspect
to answering the challenges of a
tentative economy.
Given the current situation,
we have already begun to talk
about the “human cost” of a
crisis in our sector, bearing
in mind that within our own
organization, and the company
at large, we look for solutions to
emerge from any situation with
flying colours. Trusting in talent
(and I do truly mean trust,
with imaginative solutions
that inspire and motivate the
best of us), being sincere but
also human will make our path
to success shorter and more
bearable. Furthermore, we will
be better-equipped to begin the
race to a new, more expansive
economic phase.
Relying on the best resources
strengthens our organization’s
ability. At CB Richard Ellis,
for example, making the most
of our global network and our
understanding of international
markets will create this. At the
same time, by diversifying,
this allows us to create new
services, which allows us
to have a meeting of minds.
We have already put specific
initiatives in to action, like
the development of a unit in
the Polish residential market,
the creation of a local office
in Casablanca (Morocco),
the launch of our Asset
Management and Debt & Equity
Finance services, and the
integration of a full team of
architects (FM Architectural
Firm) in the Building
Consultancy division.
Eighty percent of success in
times of turmoil comes from
having the right team. An
effective formula to focus our
new outlook on is dependant on
recognizing the importance of
the people working alongside us.
OUR BRAND REPRESENTS
AND DEFINES US IN THE
MARKET
Psychologists have established
that in trench-warfare and
hand-to-hand combat, the
motivation to fight is born out
relationships with our clients
AN EFFECTIVE FORMULA
TO FOCUS OUR NEW
OUTLOOK ON IS DEPENDANT
ON RECOGNISING THE
IMPORTANCE OF THE PEOPLE
WORKING ALONGSIDE US
Trends 2007
17
EDUARDO
FERNÁNDEZ-CUESTA,
MANAGEMENT IN
UNCERTAIN TIMES
President
of our relationships with those
who fight with us. We fight for
them. According to this theory,
the flag performs a secondary,
though critical function: the
identification of and devotion
to “something big,” bigger
than ourselves.
In moments of economic crisis
or recession, brands function
as our flags and anthems: they
comfort us, unite us internally,
and they represent the
courage and character of each
organization.
The significance of the brand
intensifies in periods of
financial disquiet. Clients
recognize dominant brands,
those that persevere despite
the changing currents. In times
of fluctuation, people cling to
those brands that communicate
stability, that represent
prestige, sound performance,
and security. We haven’t
always been conscious of the
importance of brands in the real
estate sector.
Immoderate partitioning within
the sector, and the creation of
numerous small businesses,
has precipitated a flood of
corporate transactions in the
big companies – mergers,
integrations, sales – sometimes
without much consideration
of the message it sends to the
18 SIGNATURES
market, other times without
much respect for the brand that
unites the professionals and
their clients.
Without a doubt, what will
most effectively sustain the
companies that will lead the
domestic and international
real estate market in the next
few years are the treatment,
analysis, and development of
the brand as a corporate asset.
WARINESS OF
INCREASING COSTS
Finally, I would like to point
out that the management of the
aforementioned elements must
be accompanied by an evermore acute awareness of costs
and allocated resources. This
will make us more efficient
and will allow us to adapt our
operations to a slower economy.
In the current market, these five
elements (client management,
innovation, human resources,
branding, and efficiency)
80% of success in times of turmoil
shape our focus at CB Richard
Ellis. These fundamentals
provide us with infinite
possibilities as we reconfigure
our organization to suit this
new phase. Each company and
every management team must
identify their own particular
objectives: maybe it means
emphasizing the brand, or
organizing a structure which
is more devoted to internal
efficiency, through cost control
or processing.
In any case, we must act,
moving swiftly and wisely,
without ever forgetting who
we are (the professionals),
how we can improve daily (be
innovative), what we represent
(our brand and our reputation)
and above all, to whom we
are committed, which is
our market, and where it is
positioned.
The “when” is now, this
very moment, which will
undoubtedly determine the
course of your company and
ours in the years to come.
comes from having the right team
WE BELIEVE THAT LOYALTY
IS BASED ON AN INTIMACY
WITH OUR CLIENTS; WE MUST
BETTER UNDERSTAND THEIR
NEEDS, TO ANTICIPATE THEIR
DIFFICULTIES AND BE A PART
OF THE SOLUTION
Trends 2007
19
Among those polled, 35.07% hoped
for slight increases in their foreign
investments this year, and 20.15%
believe they will strongly intensify.
20
22
BARÓMETRO
BAROMETER
Trends 2007
21
CAUTION
AMIDST
UNCERTAINTY
FIFTH CB RICHARD ELLIS
REAL ESTATE BAROMETER
Caution has taken root in the
real estate sector, prompted by
changes in the residential cycle.
In the fifth CB Richard Ellis Real
Estate Barometer, the directors
stress internationalisation and
the diversification of products
in order to progress to the
next stage and avoid feeling
apprehensive.
Where we were optimistic a
year ago, now we are cautious.
Most real estate directors are
pessimistic about the future of
the sector, though they believe
the economy will readjust
reasonably well in 2008.
Nearly all indicate that current
uncertainty stems from the
residential sector. In 2007,
78.74% of directors predicted
the average price of homes
would increase. Now, 50% are
persuaded prices will drop,
and 26.87% more estimate
that they will continue
unchanged. After a four-year
surge, it appears the cycle has
exhausted itself and reached its
turning point.
The expected drop in prices
denotes a more profound
lethargy. In 2007 residential
investment rates began to
slow. Among the directors
participating in the Barometer,
19.05% hoped to increase their
investments in residential
22 BAROMETER
products. Currently, only 8.21%
– nearly 11 percentage points
less – foresee their residential
projects getting larger.
If the origin of this hesitation
is residential, its effects will
extend to include real estate
professionals. The success rate
of agents among the different
sectors has plummeted in as
little as 12 months.
In 2007, directors gave
developers an average of
3.27 points, on a scale of one
to five; they have now been
downgraded to 1.47, less than
half. Real estate property
agents (Agentes de la Propiedad
Inmobiliaria, or API) faired
equally poorly. From an average
of 3 points last year, in 2008
they barely reach 1.62 points.
The remainder of agents suffered
similar declines. Evaluations
of builders sank from 3.39 to
2.05 points, and real estate
consultants plunged from 3.56
to 2.38 points.
Internationalisation is a central
Only real estate investment
funds maintain notable value
according to directors: from a
previous average of 3.71 to the
current 3.43 points. It appears
directors place great importance
on investment funds for the
future of the property market.
SUPPORT FOR
INTERNATIONALIZATION
In the real estate sector, caution
usually breeds defensive
strategies. Internationalization
is a central element of almost
all projects. It has gained
significant support in recent
years and is likely to be the
backbone of corporate strategies
for the majority of developers in
the future.
A foreign presence is a
mandatory profile for any real
estate company, according
to 43.28% of directors, 16
percentage points more than last
year. It is followed by property
and multi-product strategies,
23.88% and 20.9% respectively,
while policies of land reserve
and project development
reduced insignificantly.
Among those polled, 35.07%
hoped for slight increases in
their foreign investments this
year, and 20.15% believe they
will grow substantially. Another
38.6% will invest similar
amounts as last year.
Product diversification is
also spreading among foreign
investments. In 2006, 60% of
directors planned to invest
in offices outside Spain,
and last year residential and
offices accounted for 34.86%
and 33.71% of responses,
respectively.
In 2008 offices regained first
place, with only 31.34% of the
total, as residential investments
dropped to 25.37% of responses,
nearly 11 percentage points
less than a year ago. Contrary
to this, shopping centres grew
in importance with 23.88% of
responses, and hotels took a
qualitative leap to 13.43%.
Diversification also succeeded
in the domestic market, where
different products tend to
balance out in portfolios.
DIRECTORS STRESS
INTERNATIONALISATION
AND THE DIVERSIFICATION
OF PRODUCTS IN ORDER
TO PROGRESS TO THE
NEXT STAGE WITHOUT
BEING APPREHENSIVE
element of almost all projects
Trends 2007
23
Surveys reveal that 26.12%
believe that the most growth
this year will be in offices,
and another 20.9% think this
dynamism will extend to
shopping centres.
A further 18.66% of those
surveyed expect strong
investments in industrial real
estate, and 10.45% in hotels.
We have already cited the drop
in residential investments, an
option preferred by a meagre
8.21%, though local retail only
solicited 5.97%, perhaps due to
the difficulties in finding quality
product in the best locations.
TERTIARY PRICES SOFTEN
Product diversification implies
greater caution in the evolution
of the office market, the big
sector for the majority of
predictions according to last
year’s Barometer.
In 2008, nearly 56% of those
surveyed expect a minor
slowdown in office rental prices,
and 44% believe office sales
prices will also drop slightly. A
further 80.59% foresee that takeup in office area will match (or
nearly match) that of 2007, one
of the most successful years in
recent history.
Apart from offices, a large part
of directors trust that most
products will maintain longterm price and take-up stability,
perhaps with better success in
shopping centres. Responses to
the Barometer vary in this sense,
with the forecast of slight rises
in urban centre take-up, and
31.34% even expecting moderate
price hikes in shopping centre
sales, the highest figure of all
the segments.
Diversification and caution have
also influenced the services that
companies demand of property
consultants. The importance of
transactions has diminished,
accounting for 36.57% of the
demand for consultants, and
asset valuation only solicits
11.94% of responses, while
commissions for market
research and due diligence
increase, two features which
clearly attest to the need for
careful reflection and analysis
in the current market.
FIFTY PERCENT OF DIRECTORS
ARE PERSUADED PRICES WILL
DROP, AND 26.87% MORE
ESTIMATE THAT THEY WILL
CONTINUE UNCHANGED.
24 BAROMETER
Product diversification is also
Relative to last year, how do you think the GDP
will evolve in 2008?
GENERAL ECONOMY
10,71
8,96
STRONG INCREASE
35,71
36,57
SLIGHT INCREASE
45,71
NO VARIATION
34,33
7,87
SLIGHT DECREASE
20,15
STRONG DECREASE
2007
2008
Relative to last year, how do you think the CPI will evolve in 2008?
STRONG INCREASE
12,86
0,75
31,43
SLIGHT INCREASE
8,96
39,29
NO VARIATION
26,12
14,29
SLIGHT DECREASE
STRONG DECREASE
2007
42,54
2,13
21,64
MARGIN OF GROWTH.
Real estate directors expect the economy in 2008
to remain very stable. They believe it is likely
to grow at a slower pace, but in a more level
and solid fashion in the main indicators. One
in every five believes that the Gross National
Product will drop slightly this year relative to
the 3.8% attained in 2007, but 34.33% do not
expect great variations, and even 36.57% trust
that the GDP will increase somewhat in the next
12 months. Some 64.18% of those surveyed think
the Consumer Price Index will drop in 2008,
nearly 50 percentage points more than a year
ago. If in 2007, 71.43% assumed there would be
a slight recovery in interest rates, now 76.87%
expect stability or declines. Nearly 70% believe
employment will rise, when last year 55% did
not foresee great variations.
2008
Relative to last year, how do you think interest
rates will evolve in 2008?
STRONG INCREASE
20
0,75
71,43
SLIGHT INCREASE
22,39
7,86
NO VARIATION
SLIGHT DECREASE
STRONG DECREASE
2007
46,27
0,71
22,39
0
8,21
2008
Relative to last year, how do you think employment
will evolve in 2008?
STRONG INCREASE
3,57
27,61
28,57
SLIGHT INCREASE
41,79
55
NO VARIATION
SLIGHT DECREASE
STRONG DECREASE
2007
11,94
11,43
12,69
1,43
5,97
2008
spreading among foreign investments
Trends 2007
25
REAL ESTATE SECTOR
THE FOREIGN GUARANTEE.
Prudence on the part of directors
has bolstered foreign interest. Of
those interviewed, 43.28% consider
a foreign presence the best real
estate strategy, 16 percentage points
more than a year ago. Property and
multi-product strategies continue
to be valued by more than 20%, a
level nearly equal to last year, while
land reserves and development
projects drop marginally.
In your opinion, which real estate
company profile is most significant?
27,14
FOREIGN PRESENCE
43,28
16,43
LAND RESERVES
DEVELOPMENT PROJECTS
ASSET PURCHASES
5,97
9,29
2,24
2,86
3,73
22,86
23,88
PROPERTY STRATEGY
21,42
20,9
MULTI-PRODUCT STRATEGY
2007
2008
Contributions expected from the following real estate professionals
(valued 1-5)
CONFIDENCE COLLAPSES.
Overall, confidence on the part of
directors as to the leading real estate
players contributions has collapsed
significantly. On a scale of one to
five, the average value of developers
barely reached 1.7 points, and agents
1.62 points – both devalued by
more than half. Average confidence
in builders dropped by 1.34 points
to 2.05, and real estate consultants
hit 2.38, after obtaining 3.56 a year
ago. Notable contributions are only
expected from real estate investment
funds, who maintain an average of
3.43 points, merely 28 hundredths of
a point less than in 2007.
26 BAROMETER
3,07
BUILDERS
3,39
2,05
2,85
DEVELOPERS
3,27
1,47
2,73
INVESTMENT
FUNDS
3,71
3,43
2,35
3
AGENCIES
1,62
2,78
CONSULTANTS
3,56
2,38
2006
2007
2008
Only real estate investment funds
In which sectors does
your company plan to go abroad?
REAL ESTATE SECTOR
6,67
SHOPPING CENTRES
SHOPPING CENTRES
16,73
23,88
5
5
13,43
INDUSTRIAL
REAL ESTATE
10
5,71
4,48
LOCAL RETAIL
6,67
4,29
1,49
60
33,71
31,34
OFFICES
11,66
RESIDENTIAL
2006
2007
34,86
25,37
2008
MORE FOREIGN OPTIONS FOR
DIVERSIFICATION.
International presence is prone to diversify.
Real estate directors consider office projects the
primary foreign option, but relevance is distributed
increasingly equally among the sectors. Some
31.34% opt for offices, nearly 30 percentage points
less than two years ago and 2.34 percentage points
less than in 2007. A further 25.37% plan residential
projects, almost 10 percentage points less than last
year, as if the mistrust of the residential sector has
permeated the foreign market. Plans to enter the
foreign shopping centre sector are being researched
by 23.88% of directors, 7.45 percentage points more
than twelve months ago. The most significant rise
is in hotels, which are now being considered by
13.43% of those surveyed, 8.43 percentage points
more than in 2007.
ONLY 8.21% – NEARLY
11 PERCENTAGE POINTS
LESS THAN LAST YEAR –
FORESEE TAKING ON MORE
RESIDENTIAL PROJECTS
maintain notable value according to directors
Trends 2007
27
REAL ESTATE YIELDS
AND INVESTMENTS
NO SURPRISES
IN YIELDS.
In 2007, Spanish initial yields across
the different real estate products were
among the lowest in Europe. Their
evolution over the course of the year
seemed to foreshadow imminent
short-term recoveries, but directors
participating in the Barometer still
haven’t seen them. In fact, 38.06%
think yields will remain stable, only
32.84% expect a slight increase (less
than two percentage points more than a
year ago), and a meagre 2.24% predict
strong increases (nearly five percentage
points less than in 2007). Some 23.13%
of directors expect a slight decrease in
yields, which is a five percentage-point
increase over last year.
Of the following, which is your forecast for prime yields
in Spain in 2008?
7,15
STRONG INCREASE
2,24
30,95
32,84
SLIGHT INCREASE
43,65
38,06
STABLE
18,25
23,13
SLIGHT DECREASE
STRONG DECREASE
2007
0
3,73
2008
How will your investment in other countries evolve in 2008?
MORE FOREIGN
INVESTMENT.
Foreign investment has become the key
strategic ingredient in the real estate
sector for 2008. Increases are predicted
by 55.22%, up slightly more than a
percentage point from 2007. Those
predicting stability for investments
account for 38.06%, and less than 7%
of the total predict declines.
23,8
20,15
STRONG INCREASE
30,16
35,07
SLIGHT INCREASE
42,86
38,06
STABLE
SLIGHT DECREASE
STRONG DECREASE
2007
1,59
4,48
1,59
2,24
2008
AMONG THOSE POLLED, 35.07%
HOPED FOR SLIGHT INCREASES IN
THEIR FOREIGN INVESTMENTS THIS
YEAR, AND 20.15% BELIEVE THEY
WILL STRONGLY INTENSIFY
28 BAROMETER
Nearly 56% of those surveyed expect
REAL ESTATE YIELDS
AND INVESTMENTS
In the Spanish market, which sector will see the greatest increase of
your investments in 2008?
29,37
26,12
OFFICES
9,52
LOCAL RETAIL
5,97
18,25
20,9
SHOPPING CENTRES
15,08
18,66
INDUSTRIAL
7,14
HOTELS
10,45
19,05
RESIDENTIAL
OTHER
2007
8,21
1,59
9,7
2008
In your opinion, the average price of homes in Spain
in 2008 will...
RESIDENTIAL MARKET
THE MAJORITY OF THOSE QUESTIONED
EXPECT A DROP IN THE AVERAGE PRICE
OF HOMES.
Of the directors participating in the Barometer,
50.75% believe the average price of homes in
Spain will drop in 2008. Only in 2004, when 24%
predicted a decrease, has this statistic been so
highly endorsed. One in four thinks prices will
remain the same this year, eight percentage points
more than last year, and 17.16% expect there may
be incremental increases of up to 5%, though only
5.22% believe increases could rise as much as 10%.
2,6
17,5
INCREASE MORE THAN 10%
4,4
5,51
0
39,2
40
INCREASE BETWEEN 5.1% AND 10%
30,1
37,01
5,22
23,7
17,5
INCREASE UP TO 5%
39,1
36,22
17,16
10,5
12,5
REMAIN THE SAME
4,4
SHOPPING CENTRES, WAREHOUSES, AND
HOTELS ON THE RISE.
Diversification as a corporate principle also
extends to domestic real estate products. Offices
and shopping centres continue to be the preferred
investments, with 26.12% and 20.9% respectively,
two percentage points less than a year ago. The
main increases are among industrial real estate,
which reached 18.66%, and hotels at 10.45%,
both gaining around three percentage points since
2007, while residential products drop nearly 11
percentage points to a mere 8.21% of the total. An
even smaller proportion favours an increase in local
retail at 5.97%.
13,39
26,87
12,5
13
7,87
DECREASE
2004
2005
2006
2007
24
50,75
2008
a minor slowdown in office rental prices
Trends 2007
29
CONSULTANCY
AND FORECASTS
In which of the following areas will your company solicit
recommendations from real estate consultants?
A TIME FOR MARKET RESEARCH
AND DUE DILIGENCE.
The services demanded of real estate
consultants are changing due to
more cautious strategies on the part
of developers. The importance of
transactions has declined with only
36.57% planning to solicit consultancy
services, 11 percentage points less
than last year. There is a similar trend
in asset valuations which dropped 2.5
percentage points to 11.94%. Contrary to
this, market research is gaining relevance
with 14.18%, and due diligence nearly
reached 10%.
CONSULTANCY
8,96
0
14,18
11,38
MARKET RESEARCH
PROPERTY MANAGEMENT
SEARCH FOR FINANCING
SEARCH FOR PARTNERS
COMPANY VALUATIONS
1,49
8,94
2,24
2,44
4,48
0,81
0,75
0,81
11,94
14,63
ASSET VALUATIONS
BENCHMARKING
2,99
0,81
9,7
5,69
DUE DILIGENCE
6,72
1,63
FEASIBILITY
NEGOTIATIONS
0
4,88
36,57
TRANSACTIONS
2008
47,98
2007
How do you believe rental prices will evolve
in the following real estate segments?
HALF-EMPTY REALITY.
Sectorial mistrust has extended to the
rental prices of certain tertiary products,
and in a particularly surprising way
among offices. If last year we interpreted
conditions as half-full, in 2008 they
appear to be half-empty. In 2007, nearly
70% of those interviewed expected
price increases in offices; now 55.97%
predict slight decreases, and another
31.34% think prices will remain the
same. Among the rest of the products,
the majority foresee no significant price
variations, though the inclination is
toward slight decreases, which was the
second most voted-for option overall,
while last year the second most popular
option was slight increases.
30 BAROMETER
STRONG
INCREASE
SLIGHT
INCREASE
2007
2008
SLIGHT
DECREASE
2007
2008
2007
0
51,22
BUSINESS PARKS
6,50
1,49
35,77
14,93 49,59 47,76
8,13 34,33
0
1,49
INDUSTRIAL REAL ESTATE
9,76
0
34,96
14,93 41,46 52,24
12,20 30,60
1,62
2,24
4,88 29,10
4,48 26,83 31,34
2007
2008
STRONG
DECREASE
18,7
CENTRALLY-LOCATED OFFICES
2008
REMAIN
THE SAME
3,25 55,97
2007
2008
0
8,21
17,07
0,75
34,96
16,42 42,28 51,49
0,81
2,24
SHOPPING CENTRES
9,76
0
45,53
22,39 34,15 50,00
10,57
24,63
0
2,99
HOTELS
8,94
6,72
29,27
17,16 43,90 49,25
16,26
23,88
1,63
2,99
LOCAL RETAIL
Real estate directors are soliciting commissions for market research
CONSULTANCY
AND FORECASTS
How do you think sales prices will evolve
STRONG
INCREASE
SLIGHT
INCREASE
REMAIN
THE SAME
2007
2008
SLIGHT
DECREASE
STRONG
DECREASE
2007
2008
2007
2008
2007
2008
2007
2008
17,89
0,75
49,49
11,94
28,46 42,54
4,07
38,81
0
5,97
BUSINESS PARKS
7,32 1,49
34,96 28,36
47,97 42,54
8,13
24,63
1,63
2,99
8,94 3,73
35,77 20,90
42,28 47,76 11,38
23,88
1,63
3,73
LOCAL RETAIL
19,51
0
39,84 26,12
31,71 47,01
8,94
23,13
0
3,73
SHOPPING CENTRES
15,45
2,24
36,59
31,34
38,21 43,28
9,76
20,15
0
2,99
HOTELS
12,2
11,19
27,64
23,13 46,34 46,27
7,32
14,93
6,5
4,48
HIGHER SALES PRICES FOR SHOPPING
CENTRES.
Mistrust dominates the forecast in office sales
prices, with 44.78% predicting a drop this year,
forty percentage points more than in 2007, while
only 12.69% expect increases, compared to
67.38% twelve months ago. The survey reveals
more optimism in business parks with 42.54%
expecting comparable prices, and another 28.36%
trusting there will be slight increases. Optimism is
still greater in the shopping centre market, where
43.28% predict no notable variations and 31.34%
of the total expect slight increases (the highest
figure of all the segments).
How do you think area take-up will evolve
STRONG
INCREASE
SLIGHT
INCREASE
2007
2008
2007
33,33
0,75
39,84
BUSINESS PARKS
13,82
1,49
33,33 22,39
14,63
1,49
36,59 23,13
LOCAL RETAIL
18,7
1,49
SHOPPING CENTRES
11,38
8,13
HOTELS
2008
REMAIN
THE SAME
2007
2008
SLIGHT
DECREASE
2007
2008
2,44 31,34
0
6,72
43,09 40,30
8,94 32,09
0,81
3,73
39,84 46,27
8,13 26,87
0,81
2,24
39,02
27,61 39,02 46,27
3,25 21,64
0
2,99
0,75
34,96
24,63 47,15 50,75
0,81
5,22
3,73
22,76
24,63 38,21 48,51
8,13
4,48
11,94 24,39 49,25
2007
2008
STRONG
DECREASE
5,69 18,66
22,76
18,66
STABLE TAKE-UP.
In 2008, 80.59% of directors predict similar (or
only slightly less) take-up in offices compared to
2007, which is a record for this category. The trend
recurs in the various tertiary sectors, maintaining
equivalent (or again, slightly less) levels to those
of 2007. The only exception is among shopping
centres where 24.63% predict a slight increase in
take-up, and 18.66% expect a slight drop.
and due diligence, in efforts to ensure clear, confident transactions
Trends 2007
31
The coming years
forebode greater volatility
and higher demands on
directors and executives
in real estate, but they
certainly also offer great
opportunities.
32
3
MARKETS
AND IDEAS
Trends 2007
33
WHEN THE STORM
PICKS UP
IT GETS
STRONGER
More than ten years of practically
idyllic conditions had gone by. Sunny
days accompanied by a good southerly
breeze helped maintain a gentle swell.
The currents guided the boats on their
return to port with their bellies laden
with all manner of fish.
ADOLFO
RAMÍREZ-ESCUDERO,
Managing Director
34 MARKETS AND IDEAS
Several years had past since
the elderly townsfolk had
announced the end of such a
constructive and long lasting
run. Those savvy to nature’s
ways warned the younger
ones, as well as many of those
less familiar to the local seas
that had arrived from foreign
climbs, that these good times
would not last forever. They
begged them never to lose their
respect for the sea, to never
let their guard down when it
came to maintenance and good
management of their ships
or to neglect the necessary
precautions when coming into
shore, where there were many
undercurrents which could
sink a vessel to the sea bed in a
matter of minutes.
One day in August
circumstances changed in a
sudden and unexpected way.
The sailors set off at dawn with
a strong northerly wind blowing
that had not been seen for some
time, this brought with it dark
One day in August, circumstances
storm clouds and whipped up
surf on the horizon, sending a
warning that what was to come
would be even worse. The
powerful storm overwhelmed
many of the small ships and
even some of the larger ones
that were unprepared and
found themselves too close to
the reef, or too far out on the
high sea or were simply just
too complacent and more than
a handful lost their cargo to the
depths. However, it was not all
bad news.
In a certain way the storm came
as somewhat of a renaissance
and ushered in a return to the
old art of fishing, particularly
for the old skippers who over
the past few years had been left
behind by the modern ships
and were unable to compete
with their speed. Their keen
knowledge of sailing would
allow them to take advantage
of the constant winds, without
having to rely on fuel, which
was now in severe shortage
after the storm that had cut off
communications. Whilst many
ships had to remain in port,
the traditional boats, larger and
better equipped for the deep
waters, returned to sea, making
the most of a less intensely
fished ocean and rejuvenated
by the storms that gave more
and bigger fish to the seasoned
seafarers.
This simple parable offers a
wealth of analogies that we can
apply to the last few months
we have experienced in the real
estate sector. The anticyclones
of consumer spending fuelled
by capital gains in property
and record employment levels
in construction for Spain.
Then squalls came in by force
from other latitudes generating
financial instability causing a
rise in finance costs, a current
account deficit and inflation.
As always occurs in such
stormy times, on rough and
rudimentary waters, it is the
seasoned and experienced
skippers, with well-prepared
vessels for such adventures,
that succeed.
The coming years forebode
greater volatility and higher
demands on directors and
executives in real estate,
but they certainly also offer
great opportunities. Growth
will be found predominantly
in market fundamentals, in
asset management and in
new products and markets
rather than through capital
changed in a sudden and unexpected way
THE STORM CAME
AS SOMEWHAT OF A
RENAISSANCE AND
USHERED IN A RETURN TO
THE OLD ART
growth derived from yield
compression, which was
responsible for 60% of growth
in the last three years. Our
prediction for the next few
years suggests the following
“climate conditions” in which
we will have to work:
• In the global market returns
on property will show more
moderate growth than in
previous years although there
will still remain a good riskreturn factor.
• The two main drivers behind
Spain’s miraculous economic
growth will show clear signs
of exhaustion: consumption
and construction.
• GDP growth in Spain will
slow down and converge with
the EU15 average without the
backup of EC funding.
• The financial markets will
display further uncertainty,
with finance becoming much
more selective and interest
rates showing few signs
of lowering in the face of
threatening inflation, and few
signs of rising in the face of
a fear of a cooling down of
Trends 2007
35
ADOLFO
RAMÍREZ-ESCUDERO,
WHEN THE STORM PICKS UP
IT GETS STRONGER
GDP GROWTH IN SPAIN
WILL SLOW DOWN AND
CONVERGE WITH THE
EU 15 AVERAGE
the economy. The search for
capital and finance through
the sale of property assets will
be the norm.
• The world will keep growing.
The EU-15 arena will perform
more dynamically and will
offer some form of relief
for exports and tourism,
as well as a destination for
cross border investment,
particularly France and
Germany.
• The fundamental factor to
watch out for when making
our predictions for the
property sector will be job
creation.
• The high cost of raw
materials, driven by
strong growth in emerging
economies, accompanied
by repeated injections of
liquidity by central banks will
put slight upward pressure on
worldwide inflation.
• There will be less liquidity
in the markets, but clearly
enough to allow growth in
commercial property. New
liquidity from emerging
markets will influence global
investment through Sovereign
Wealth Funds (SWFs). We
will see the development
of regional REITS in
environments with a common
Managing Director
currency, such as the Euro,
Dollar and Yen.
Under these weather conditions,
choosing one’s route and
type of ship, along with her
experienced crew, can be
determining factors in order
to fish successfully. Some of
the more experienced captains
who have ridden out several
storms like these in the past
have shared some of their more
apt techniques with us, to do
just that:
• Keep a safe distance from
the shore. Less favourable
financing conditions and
greater financial instability are
indicators that debt should be
reduced as a precautionary
measure so that no leaks are
sprung. The measures for debt
coverage should outweigh
gearing against Net Asset
Value. The most pronounced
falls in value will be seen
in residential use land, as
by definition its residual
value entails a certain degree
of operational gearing.
Furthermore, on many
occasions, transactions of this
nature have been financed
with a considerable Loan
to Value Ratio. Should we
enter a stage of negative job
creation, it will be beneficial
to go back to basics and stick
to core strategies.
• Choose the ships most suited
to deep-sea fishing. Although
there will be fewer buyers
in the market, purchasing
power, in our opinion will
be sufficient. The low-geared
buyers such as REITs, pension
funds, open-ended funds,
Sovereign Wealth Funds etc...
will replace developers, family
enterprises and opportunistic
buyers who tend to be highly
geared. We will have to sail
to further flung oceans, less
tested and riskier waters, but
the returns will be in line with
the risk assumed.
• Look for new fishing spots
on other shores; reduce
dependence by searching
for new types of fish. We
will continue to see growth
in cross border operations.
Emerging markets, including
Asia and Latin America, will
offer greater returns than
domestic markets. In Western
Europe, we will have to look
to the East, particularly to
Russia and Turkey, where
possibilities of high growth in
exchange for greater risk will
be on offer. Morocco provides
a close alternative destination
There will be less liquidity in the
for investment and a close
eye should be kept on it. It
has clear tourism potential,
a shortage of affordable
housing and a large capital
city; Casablanca has over
5 million inhabitants. The
depreciation of the dollar is
causing a relative increase
in value for assets listed in
that currency. In the mature
markets, the tendency for
corporate divestment will
continue to rise through
instruments such as sale and
leasebacks, and we will see
new products coming into
favour with investors such
as parking, lifestyle retail
centres, hospitals, retirement
homes, self-storage, etc...
• Integrate suppliers, search
for new affiliations, grow
in size, and expand new
distribution channels. The
residential development
markets will suffer from
inflexible environments. One
will need to work on gaining
market share, generate cost
savings by economies of
scale, and serve the growing
market segments such as
social and rental housing
and new regions whose
populations are growing. The
increased difficulty of raising
finance will bring about
contributions in kind and
the trading of shareholdings
in projects. The commercial
property markets will benefit
from favourable structural
change; new products,
new markets and new
capital looking to diversify.
Vehicles with tax breaks
such as REITs will grow and
structurally converge in areas
with a common currency.
Commercial property
with long leases offers an
excellent refuge for more
inflationary environments
with traditionally very
low real interest rates. The
public sector will be looking
for private finance to serve
demands on infrastructure
and amenities without
infringing on public spending
limitations. There will be
a harmonisation in the
availability of exposure to
commercial property within
the sphere of financial
vehicles such as risk
management funds and the
use of real estate derivatives.
We will see a lot of balance
sheet rationalization prompted
by the financial institutions
and opportunistic investors
who together, will steer
consolidation in the industry,
the sale of underperforming
assets, internationalisation
and the strive for business
model synergies.
As in our story of the fishermen,
in the markets, there is never
a period of calm which is not
followed by more turbulent
times. The coming years will
without a doubt separate
the best captains from the
mediocre, but they will also
offer good opportunities
for those who know how to
markets, but clearly enough
astutely navigate their ships in
those waters that are abundant
with fish and where less boats
have already trawled. In a more
interconnected economy the
cycles tend to get shorter and
shorter and internationalisation
of the markets always allows
us the sanctuary of new seas in
which we can mitigate risk of
nature’s caprices, and develop
new techniques for meeting
new sailors with whom we
can exchange knowledge and
skills. When the storm worsens,
we should prepare ourselves
with the best material and
experience for the long and
uncertain journey, but the
adventure will be far greater
and more exciting than that
offered by the already explored
docile waters.
Trends 2007
37
OFFIMORPHOSIS
Office properties are adapting to new
working practices. It is important
to understand where changes are
taking place and why.
ALFONSO GALOBART,
Managing Director
The Czech intellectual
Roger Fidler christened
the radical transformation
that new technologies
triggered in communications
mediamorphosis. Something
similar is happening with offices,
which has logically begun to be
dubbed offimorphosis.
In recent years, offices have
undergone many changes.
Offices are traditionally a more
stable sector; they do not see too
many organic changes and are a
consolidated economic activity.
It will continue to be like that,
but with hither to unheard of
transactions and changes and
other new elements that warrant
more in depth study.
When this market first began,
office transactions were
ordinarily carried out in the
traditional central areas of the
city, by definition, commercial
and financial districts. Since
then, development has extended
to the urban periphery,
generating a vast supply of
modern buildings. This change
of location has created other
modifications as well.
Urban expansion has brought
with it new areas of decentralised
offices. Due to market demand,
this has become the market norm
Taller buildings are being
URBAN EXPANSION HAS BROUGHT
WITH IT NEW, DECENTRALISED
OFFICE AREAS
in all major Spanish cities.
Madrid, for example, has
excellent transport networks,
but traffic jams are beginning to
spread to the outskirts. A central
location is no longer the only
motivating factor when choosing
office space, as it was in the past.
Other conditions now prevail,
like efficiency, the guarantee
of a comfortable working
environment, or conveying the
right image. Fulfilling these
mandates requires modern,
decentralised solutions. This
change is occurring in Madrid
and even more so in Barcelona
and Valencia.
NEW DESIGNS
Even the design of properties
has changed. In the periphery,
business parks are the norm;
these are areas that attest to
a new business philosophy.
The solutions are aesthetic,
practical, and innovative, with
more flexible spaces, in more
agreeable, relaxed environments,
with more services, and the
contractual option for exclusive
or shared use.
At the same time, taller buildings
are being constructed on the
outskirts of cities. Up until
now, there were very few office
towers in Madrid; however, there
are now four new additions,
which although they are still
under construction, are about
to supersede the previous
emblematic buildings on the
Paseo de la Castellana.
The same is happening in
Barcelona, with similar examples
being the properties at Diagonal
Mar and District 22@, as well
as new developments in Plaza
de Europa in Hospitalet. Be that
as it may, current demand is
split between traditional offices
and modern constructions, and
across the two aforementioned
development variants – vertical
and horizontal.
Another important
transformation centres on the
technological innovations in
constructed on the outskirts of cities
office construction. Exterior
design has been modified and
above all the performance and
quality of the properties.
SPACE AND TECHNOLOGY
In the first office only buildings,
technology was limited to a
centralised air-conditioning
system, smoke detectors and fire
alarms, false acoustic ceilings,
and cable boxes for lights and
telephones.
Then came the phase of
intelligent buildings, so called
because they had information
networks to control communal
area facilities. The final phase
has given us sustainable or
ecologically-sound buildings that
are constructed from recycled
materials, designed to reduce
contamination and save energy.
70% of current office take-up
is in periphery areas of cities,
which is logical given that there
is a larger amount of supply
in these areas. Prices are more
reasonable, and can be up
to 60% less than in the city
centre. But the main reason that
companies have begun to exodus
to the outskirts of the city is the
need for more space.
As a result, many corporations
have moved or plan to move.
Among the numerous examples
are: Banco Santander, Telefónica,
Trends 2007
39
ALFONSO GALOBART,
OFFIMORPHOSIS
Managing Director
Iberdrola, and BBVA. Their
approach reflects care and
intelligence, which includes
financial considerations.
In certain cases, they have
chosen to exchange previouslyoccupied buildings for new
acquisitions; in other cases old
buildings are sold in order to
construct new head offices with
the profits. At other times, as
is the case with Endesa, they
buy land, develop it and set up
a leaseback agreement, which
provides the financing for core
projects and frees them up from
investing in property.
Changing headquarters in order
to restructure the business makes
sense, and even more so when
one can take advantage of real
estate market cycles. When
supply is greater, prices drop
and options increase. The sale
of centrally located offices or
those in areas that have increased
in price is a way to cash in on
accumulated equity, especially
since they are very likely not to
be as practical as when they were
first taken on and they normally
require substantial expenditure.
Current conditions have created
many changes in business
CHANGING HEADQUARTERS
IN ORDER TO RESTRUCTURE
THE BUSINESS MAKES
SENSE, AND EVEN MORE
SO WHEN ONE CAN TAKE
ADVANTAGE OF REAL ESTATE
MARKET CYCLES
organisations: mergers, sales,
new operating strategies,
diversification in other sectors.
In each of these instances,
it makes sense to rationalise
ones real estate portfolio. It is
not profitable, for example,
to duplicate head offices,
which results in inadequate
maximisation of space and
operational disjointedness.
However, we must not assume
that all movement is towards
the periphery of cities, or that
all companies want to leave the
centre. When the need to relocate
arises, the first element to be
considered is proximity.
After the fire in the Windsor
building, for example, displaced
tenants quickly moved to
buildings in nearby Azca and the
Castellana. In other words, prime
offices have a strong following.
In Barcelona, the vacancy rate in
the centre is at only 1.8%, while
the global average is 5.5%.
GROWTH AND MATURITY
Madrid’s office park has
doubled in the last 15 years.
Since the 1992 Olympic Games,
Barcelona’s office area has
expanded by 46%.
Valencia is growing at a
comparatively quicker rate. The
market was very parochial in the
beginning, with many mixed-use
buildings, but over the last five
years the amount of new space
has grown considerably and
additional business areas have
been developed and the total
office space is forecast to grow by
48% in the coming years.
With so much growth, buildings
that were constructed before 1990
are already considered to be old.
Some have been refurbished,
mainly the communal areas and
elevators, although HVAC and
fire-prevention upgrades are also
common.
In reality, clients prefer newly
constructed buildings, perhaps
because they symbolise
dynamism, vision, and progress.
New supply entering the market
typically gets sold or let before
second-hand properties.
Presently, only 8% of available
space is new. Just by looking at
how much available space there
is in the market, this indicates
that the turnover and letting of
second-hand buildings remains
complicated. Take-up of new
areas and pre-lets currently
represents 28.3% of the total
gross take-up.
In Madrid, new business districts
are primarily forming in the
north and northeast. Together,
they account for 55% of the
annual gross take-up. The main
business district, located along
the Paseo de la Castellana,
is extending progressively
northward, as far as the Burgos
highway, Las Tablas and
Sanchinarro.
La Moraleja and Arroyo de la
Vega also remain strong areas in
the Madrid market. In the east,
Campo de las Naciones and the
exhibition area is considered
a good option for blue chip
companies. Worthwhile
opportunities for business
parks are also available along
In Barcelona, there are two bussiness districts
the Barcelona highway, where
the occupancy rate is currently
higher than 90%.
The west has consolidated as a
business area dispersed amongst
a primarily residential area. In
Pozuelo, Majadahonda, Boadilla
and Las Rozas, and likewise
along the La Coruña highway,
plenty of office space has been
built. These properties have a
current occupation rate of 93%.
In Barcelona, there are two
business districts in addition
to the traditional urban centre:
Diagonal Mar and District 22@
in the northeast, and El Prat
and Hospitalet in the southeast
periphery, as well as the main
business avenue along Gran Vía
and Plaza de Europa.
In addition to these areas, one
must add the new constructions
on the perimeter of Sant Cugat
and in other outlying areas of the
city. While vacancy in the centre,
as previously noted, barely
reaches 2%, in these outlying
areas it is nearer at 13.5%.
However, the take-up rate will be
higher in the new business areas,
which account for 79% of the
accumulated take-up, as opposed
to 21% in the central districts.
Valencia’s figures are similar,
indicating a transition from older
buildings to newly constructed
properties in new areas. Some
90% of projects currently under
development are outside the
city’s centre.
FUTURE BUSINESS
DISTRICTS
In the future, these processes
will be intensified. There will
continue to be a pocket of
demand that is reluctant to leave
urban centres. In Madrid, this
demand will be concentrated
within the Calle 30 ring road,
an area that undoubtedly will
continue to see continued growth
in the future, although the
in addition to the traditional urban centre
Trends 2007
41
ALFONSO GALOBART,
OFFIMORPHOSIS
periphery option will continue to
win support.
It is likely that possible future
locations will expand to other
business districts as well.
Madrid’s preferred option is
the Valdebebas development,
an area which already has all
the necessary resources and
infrastructures in place, although
it will be sometime before it
welcomes in its first tenants.
More business parks are being
constructed along the Barcelona
Managing Director
highway, which will strengthen
take-up capacity in the area.
Projects in different areas are
also expected, because the city
is expanding and it is illogical
to concentrate all tertiary
office activities in two or three
locations, which are ever further
from employees and clients.
By way of example, areas
like Ensanche de Vallecas,
Carabanchel, Valdecarros or
Villaverde will have land for
office use, in order to provide
services or simply because
they trust the demand for
decentralised business areas
will continue.
Clients demand location,
quality, innovation, services, and
provisions, but are conscious
of economic costs. The office
market in Madrid is healthy
because it has understood how
to expand without suffering high
vacancy rates.
Barcelona, on the other hand,
has learned from previous errors
in judgement, and now it is
not so easy to market offices in
unconsolidated areas. At the
same time, they have worked
out the most effective methods
of reforming old buildings by
converting them into residential
properties and hotels, dependent
on which is more profitable.
These decisions, as well as
the production of outlying
business parks, help strengthen
the new peripheral markets.
Owing to this, the availability
of space becomes more flexible,
preventing bottle-necks and
imbalances in demand that could
affect prices.
OPEN INTERIORS
When choosing between various
properties, the most important
consideration is flexibility, always
bearing in mind that a company
could be subject to changes in
the future. Office design has
completely changed. Partition
walls have disappeared in favour
of open-plan workspaces, with
only a few meeting areas and
one or two managerial offices,
sometimes none.
It is the new work philosophy,
one of integration and
communication among
colleagues. As a consequence,
office space is more efficiently
used and offices cost less. Some
decades ago, the calculation of
office space required per worker
was around 12-15 m2 including
passageways, private offices and
meeting rooms. Today, that figure
has dropped to 10 m2 per worker,
and may continue to drop even
further.
The efficiency cause has
received additional support for
being environmentally sound
and encouraging sustainable
construction. The objective is to
design properties that are good for
the environment, that reduce the
current levels of contamination,
and that are constructed of
sustainable, recyclable materials,
so as not to compromise the
future of the planet.
The efficiency cause has received additional support for being
There are systems that reduce
contaminants, that generate
clean, renewable energy, and that
minimize consumption.
Furthermore, there is growing
concern among proprietors
and tenants about worker’s
health and safety. We already
know there are buildings with
maintenance problems that could
cause illness or transmit viruses
through ventilation ducts.
Many companies are interested
in joining the movement to save
the environment, believing that
consumers of their products are
conscious of the dangers inherent
in the deterioration of the
planet’s health and the depletion
of its natural resources.
It is a convincing argument for
future business plans. Legislation
is beginning to impose certain
measures, and from January
2008, the European Union
will require energy-saving
accreditations for every new
construction.
Moreover, there are international
bodies that certify environmental
quality and a given property’s
level of commitment to nature
conservation. For example
LEED (Leadership in Energy
and Environmental Design)
accreditations are issued by the
U.S. Green Building Council, and
are available to any interested
property owner or developer.
All of these innovations are
good news for the market and
one can be sure that clients
will appreciate proprietors’
conservation efforts.
This brief review of
offimorphosis serves to
emphasise the extent to
which the office concept has
changed over recent years. It
will undoubtedly continue to
change as efforts to improve the
efficiency and comfort of
clients persist.
CLIENTS DEMAND
LOCATION, QUALITY,
INNOVATION,
SERVICES, AND
PROVISIONS, BUT
ARE CONSCIOUS OF
ECONOMIC COSTS
environmentally sound and encouraging sustainable construction
Trends 2007
43
ASSET MANAGEMENT,
THE BEST OF
EVERY ASSET
‘Managing complexity’ has become the
common denominator of many Spanish
real estate companies. As they enter
new markets and expand their product
portfolios, a comprehensive vision of
their assets is indispensable. This is
what Asset Management is for.
Not long ago, most real estate
managers concentrated on one
geographical market, the local
market, and their portfolios
were dominated by a single
product type. Today this rarely
happens. It has become vital
to control a selected multiple
scenario, within the many
possible variants of the matrix
of products and markets.
ENRIQUE
MARTÍNEZ LAGUNA,
Managing Director
ACCURATE TERMINOLOGY
Firstly, one needs to thoroughly
define the concept of Asset
Management and the various
principles it entails. Often
the term is confused with
Portfolio Management, Equity
Management, or Property
Management, none of which are
synonymous.
In the Anglo-Saxon market,
terminology is much more
precise. Property Management
and Portfolio Management are
clearly differentiated from Asset
Management, which is a much
broader concept, entailing every
facet of real estate assets, from
acquisitions to sales.
In mature and professional
markets, real estate companies
are dedicating more and better
resources to Asset Management,
incorporating it into operations
Establishing a foreign subsidiary requires changes
of marketing, human resources,
client management, and
diversification. Consequently, as
in any economic sector, defining
a strategic plan is more and
more essential.
The complexity of the market – its
cycles, its competitive character
– favours the comprehensive
development and consequent
professionalism of any sector,
and this has been the case in
Spain over the last decade. The
real estate field has ceased to
be dominated by business and
enterprise, and is currently
comprised of authentic companies
with considerably more
professionals and specialists.
In the early days of real estate,
management was concentrated
almost exclusively on the
acquisition of assets and
their subsequent turnover.
Nowadays, as the profession
has matured, investment
and divestment strategies are
key elements to success, but
must be accompanied by the
comprehensive management of
assets, as well as an adequate
organization and business
structure.
VALUE AND CYCLES
Focusing on Asset Management,
adding value requires an
informed selection of different
product cycles, potential
markets, the creation of brands,
and the repositioning of obsolete
assets, throughout the entire
process – from design to
occupancy.
Asset Management is a complex
function for every organization,
especially in Spain, where
domestic real estate companies
are immersed in an ambitious
process of diversification,
prompted undoubtedly by the
changes in market conditions.
Nowadays, the principal
national companies are
immersed in product
diversification processes,
predominantly, international
geographical diversification.
They are classified as follows:
Diversification of Products:
• The primary consequence
is greater complexity in the
Scope of asset Management Services at CBRE
SERVICES
PROPERTY
MANAGEMENT
BUILDING
CONSULTANCY
INVESTMENT
LETTING
VALUATIONS
ACCOUNTANCY & TAX
COMPLIANCE ACCORDING
TO LOCAL NORMS
CONSOLIDATE
ACCOUNTING ACCORDING
TO SPANISH ACCOUNTING
OVERALL
CONTROL
REPORT
TO CLIENT
PROVIDED BY
CBRE
CROSS BORDER
CBRE
SPAIN
PORTFOLIO MANAGER COORDINATION
in the management structure of the parent company
Trends 2007
45
ASSET MANAGEMENT,
THE BEST OF
EVERY ASSET
management of assets. Each
product can be in a different
phase of the cycle, with
distinct requirements for
profitability, unique demands,
and various potentials of
income growth.
• Even among the same
product type, diversification
magnifies the differences in
performance and valuation
between prime products and
those of lesser quality that
present a major risk. Each
instance demands highlyspecialized management.
Geographical Diversification:
Every move to another country
requires radical change.
Firstly, everything is new, and
adaptation demands the best
and most qualified resources,
capable of controlling the levels
of risk and supervising (at the
very minimum) the following
requisites:
• Legal and fiscal framework.
• Market and research.
• Designated agents and
businesses
ENRIQUE
MARTÍNEZ LAGUNA,
Managing Director
• Attainment of credibility and
recognition of the brand in a
new market.
As well as demanding
considerable organizational
effort in resources, the
establishment of foreign
subsidiaries requires changes
in the management structure of
the parent company, mainly in
reporting and control.
The growing complexity of
Asset Management in the
Spanish market is indisputable.
Many companies have
significantly increased their
cross-border activities in the
past two years, approximating
in size and scope those real
estate companies that have
traditionally maintained a panEuropean presence.
Using the evolution of real
estate companies with wellestablished pan-European
profiles as a point of reference,
it is evident that organizational
models are intricately linked to
Asset Management strategies.
These strategies can be broadly
divided into three categories:
strategies of companies whose
cross-border expansion
involves opening their own
subsidiary, those who establish
a subsidiary with a local
affiliate, and those who conduct
business abroad without
establishing subsidiaries.
The Asset Management strategy
corresponding to the three
aforementioned categories
would evolve proportionately
from one of minimal service
outsourcing in the case of
locally affiliated subsidiaries,
to one of complete outsourcing
in the case of no existing
subsidiary.
Benchmark: The foreign
experience in Spain
Leading Subsidiaries.
Rodamco, Corio and ING are
clear examples of pan-European
companies with leading
subsidiaries of long standing in
Spain. In the beginning, both
Rodamco and Corio outsourced
a large part of their Asset
Management operations, based
in teams of Asset Managers
with exclusively strategic
profiles. In subsequent stages,
these companies opted to
vertically integrate most phases
of the chain of value, primarily
+
-
in acquisitions, development,
commercialization, and
management.
Partial Outsourcing.
Companies such as the Americanowned Hines and GE Real
Estate, which focus mainly on
development and investment,
respectively, are among those who
maintain a solid presence in Spain
and who successfully employ an
established outsourcing policy.
The growth of their subsidiaries
is due to greater activity rather
than increased insourcing. That
is to say, their Asset Management
strategy continues to be one of
partial outsourcing, especially
in the operative components
of business.
CROSS-BORDER
EXPANSION
OPTION
ASSET
MANAGEMENT
LEVEL OF
OUTSOURCING
1. SUBSIDIARY IN FOREIGN COUNTRY WITH
A LOCAL AFFILIATE
(DEPENDENT ON
LOCAL AFFILIATE’S
PROFILE)
LOW
2. OPENING OF OWN
SUBSIDIARY
(DEPENDENT ON
COMPANY’S STRATEGIC PROFILE)
2.1. CONSOLIDATION
ASSET MANAGEMENT
LIMITED OPERATIVE
2.2. INITIAL
PHASES
PARTIAL OPERATIVE
ASSET MANAGEMENT
3. NO SUBSIDIARY
VERY CENTRALISED,
GLOBAL STRUCTURES
OPERATIVE AND
STRATEGIC ASSET
MANAGEMENT
-
INTERMEDIATE
TOTAL
+
The growing complexity of asset management
Operative Outsourcing.
Pan-European fund managers
like British Land, Henderson or
AXA are examples of tactical
outsourcing, where subsidiaries
have one basic function, strategic
Asset Management. They are
supported externally by the
operative components of the
business, maintain thoroughly
controlled organisational
structures in the subsidiaries,
and are highly coordinated with
the parent company.
Near-total Outsourcing.
Finally, European companies
located in Spain that use
near-total outsourcing can be
subdivided into two categories:
• German funds with vast
experience in the Spanish
market, like Deka, WestInvest
or Difa, who maintain no
permanent base, who employ
international teams of Asset
Managers in their central
headquarters, and who
engage external local advisors
in Asset Management
operations.
• New arrivals to the Spanish
real estate market like
Quinlan Private or Australian
fund management companies
like Babcock, IGIPT or
APN/UKA, who opt for
complete outsourcing of Asset
Management operations.
EXIT STRATEGIES
What is the right course of
action for Spanish companies
in their cross-border activities?
Though still at an early stage,
we can already find examples
of different corporate strategies,
different approaches to Asset
Management, and different
methods of outsourcing.
Principal fund management
companies, like Banco
Santander, clearly opt for
outsourcing the operative
component of Asset
Management, in conjunction
with strategic Asset Management
which is maintained at their
central headquarters.
Due to the nature of their
business, developers such
as Acciona, Realia, Grupo
Lar, Riofisa, Layetana, etc.,
previously chose to launch
subsidiaries, thereby allowing
them to analyze the market and
potential projects, as well as
seek out local affiliates in situ.
Fadesa, Iosa (Comsa), Chamartín
and others have already done the
same in eastern countries.
In short, the challenge of
international expansion requires
specific strategies for Spanish
companies, and choosing
the most efficient Asset
Management formula will
become a determining factor
in the future.
in the Spanish market is indisputable
ASSET
MANAGEMENT
ENTAILS EVERY
FACET OF REAL
ESTATE ASSETS,
FROM ACQUISITIONS
TO SALES.
Trends 2007
47
THE TREES
AND THE WOODS
We know that sometimes you cannot
see the wood for the trees. In business
something similar happens. That’s
why we must never lose sight of the
client and the team.
JOSÉ MANUEL PEIDRÓ,
Managing Director
In the corporate world we live
in, speed is not always the
best rule of thumb. We should
remember that acceleration and
deceleration count for nothing
alone and that true value lies in
knowing where you want to go,
why, and on what terms.
Prioritising objectives over pace
seems to be a thing of the past.
Now, due to increasing pressure
in the field, companies are obliged
to grow frenetically year on
year. Ninety percent of for-profit
enterprises must increase earnings
annually, maximising their
profits and improving their costeffectiveness. In achieving this,
they seldom ask at what price.
If we concentrate on the real
estate sector, it is more than
likely that in the last decade of
prosperity we have all increased
the volume of our business and
our revenues. The key throughout
this period has been the product.
Buying the most land and selling
the most homes in the shortest
period of time. At what price?
• At the price of overlooking the
importance of planning that
provides sustainable quality to
the residents of the projects.
• At the price of ignoring
innovative architectural
formulas that are original,
Long term objectives always mean paying
respectful, coherent,
and integrated with the
surrounding landscape.
• At the price of ignoring the
usefulness of separating
clients into groups. Which is
equivalent to disregarding the
need to differentiate, because
buying capacity, typologies,
qualities, financing needs,
methods of payment must be
different. It is always an error
to veer towards producing
a job lot of the same type
of properties, the same for
everyone and at the same price.
• At the fundamental price of
marginalising the client, the
nerve centre of our operations.
Commercialisation has tended
to obscure clients, rendering
them indistinguishable in
a vast, grey area; we have
forgotten the one cardinal rule:
looking after the client first
and foremost, to the best of
our ability, and always with
absolute humility.
TEAMWORK
Professional teams seem to have
been submerged in a similar
fog. Ever more frequently, the
general rule is that companies
prioritise revenue above the
employees who work to attain it.
COMMERCIALISATION HAS TENDED
TO OBSCURE CLIENTS, RENDERING THEM
INDISTINGUISHABLE
As a veteran basketball player,
and even a captain, clearly it is
my duty to impart a theory that
equates managing a business
with managing a basketball team.
If you are on the court, playing
defence, you are not likely to be
the top scorer. Achieving your
objectives individually is seldom
successful. Alternatively, if you
organise, motivate and manage
the team as a whole, it is highly
probable that your team will
attain the points and the victories
that it expects, perhaps even
exceed expectations.
I have tried to apply this
principle at CB Richard Ellis.
When I began, there were only
five of us in the residential
department; now we operate
a staff of over a hundred, and
throughout that time, I remain
convinced that our greatest
efforts must focus on motivating
these professionals, making them
feel happy and fulfilled in their
jobs, giving them responsibility.
In this way, team members
attention to the client and the team
commit themselves personally to
the project, contributing as much
as possible to their department
and to their company. This team
management strategy allows
financial goals to be reached
and often even surpass all
expectations.
Maintaining a friendly and
approachable temperament,
enabling pro-activity, supporting
decisions, reflecting on them,
amending them and updating
them as a team, are key elements
to team management. Realise that
the objectives of any department
can only be achieved as a whole,
by each member feeling like they
belong to the team, and that they
are making an effort with them
and that they enjoy themselves
in the process.
A united and motivated team is
the best way to achieve goals in
the business world. At this time
of change in the real estate cycle,
it is essential that companies
and directors quickly realise that
we have omitted the two most
important people in our market:
our client and our team.
Trust, mindfulness, motivation,
respect, listening, and
observation. These are concepts
and objectives that must be
applied consistently and
insistently to both groups,
regardless of market conditions.
Whoever grasps this key
principal will weather the storm
better, experience more growth,
and obtain better results. Longterm objectives always mean
paying attention to the client
and the team; the woods. To
concentrate on product and profit
is to only see the trees, short-term
goals that will not thrive until
converted into the woods. And
that’s where we are.
Trends 2007
49
THE WHYS
OF VALUATIONS
In recent years there have been
a multitude of technological and
organisational changes in business,
that increasingly distort the reflection
of the true image of property and the
financial situation of companies.
In recent years there have been
a multitude of technological
and organisational changes
in business, that increasingly
distort the reflection of the
true image of property and the
financial situation of companies.
PATRICIA
GARCÍA DE PONGA,
Finance Director
MARK CLIFFORD,
Managing Director
MARKET VALUE
AND FAIR VALUE
Moreover, the internationalisation
of operations and the growing
use of foreign financing have
generated an increase in the need
for uniform financial reporting,
in light of which the European
Union opted for the regulations
issued by the International
Accounting Standards Board
(IASB), instead of developing
specific new accounting
principles for Europe.
One of the initial objectives,
was that in a few years, all
European Union member
countries would standardise
the reporting of financial
information, according to
the same criteria. In the
medium term, this accounting
standardisation would mean,
substantial savings in
operating costs.
The 2005 tax-year marked a
turning point in the information
submitted by listed companies,
who, for the first time, adopted
For years, the fair value method has been the
the International Financial
Reporting Standards (IFRS,
previously known as the
International Accounting
Standards, or IAS; or according
to their Spanish acronyms the
NIIF, Normas Internacionales de
Información Financiera, and the
NIC, Normas Internacionales de
Contabilidad, respectively).
Currently, the Spanish Institute
of Accounting and Auditing
(ICAC, Instituto de Contabilidad
y Auditoría de Cuentas) is
finalising a draft of the new
General Accounting Plan,
which will be approved by
Royal Decree at the end of 2007
and enacted on 1st January,
2008, thereby replacing the
old 1990 Accounting Plan and
marking another significant
milestone in the accounting
standardisation process.
The introduction of fair value
is one of the new elements that
involves the adoption of IFRC
norms in Spanish companies.
The historical cost calculation
has traditionally been accepted
by the majority of international
accounting systems, due to the
objectivity and simplicity of its
application.
However, in recent years,
there is a consensus that
historical cost valuation has
lost its credibility. It is clear
that market value reflects the
economic reality of a business
more accurately than the
historical value, not only
because it is more relevant
for incorporating the changes
in asset valuations, but also
because it is more reliable,
since we know with greater
confidence the price at which to
sell an asset at a given time.
Specifically, the IAS 40
considers the possibility of
using the fair value model to
appraise real estate investments
(although it allows the
possibility of continuing to
value them in the traditional
historical cost method).
For years, the fair value
method has been the most
THE 2005 TAX-YEAR MARKED
A TURNING POINT IN THE
INFORMATION SUBMITTED
BY LISTED COMPANIES
frequently used method by
the big European real estate
firms, and currently in Spain
approximately half of the listed
real estate companies have
opted to report fair value in
their balance sheets, effectively
increasing the uniformity of
their accounts with those of
other foreign companies.
Reflecting the value of these
properties on the balance
sheet at the given date means
a significant growth of their
individual funds, but a decline
of future profits derived from
the sale of these assets; it
introduces volatility in to
the profit and loss accounts
of the companies, because
among other factors, they not
only reflect the operating and
business results but also those
profits and losses stemming
from value fluctuations – in this
case of the properties – that do
most frequently used method by the big European real estate firms
Trends 2007
51
THE WHYS
OF VALUATIONS
PATRICIA
GARCÍA DE PONGA,
Finance Director
not directly depend on business
decisions but upon the market
situation at a given moment.
Nevertheless, in the case of
unlisted companies, the ICAC
has preferred to focus the
application of this valuation
method on financial instruments
(not on real estate properties),
which, when first implemented,
allows one to update the value
of specific assets.
The IASB’s definition of
fair value and the IVSC’s
(International Valuation
Standards Committee)
definition of market value are
completely identical.
The IASB (International
Accounting Standards Board,
the relevant body to which
the international accounting
regulations refer) defines fair
value of a real estate investment
as the amount for which it
could be settled, between
knowledgeable and willing
parties, in an arms’ length
transaction. It is fundamental to
point out that valuations must
reflect the market conditions
at the balance sheet date and
more importantly that fair
value will not reflect future
expenditures or future synergies
derived from fiscal, legal, or
regulatory aspects.
For its part, the IVSC
(International Valuation
Standards Committee, the
IASB’s counterpart in valuation
regulations) defines market
value as the estimated amount
for which a property should
exchange on the date of
valuation between a willing
buyer and a willing seller in
an arm’s length transaction
after proper marketing wherein
the parties have each acted
knowledgeably, prudently, and
without compulsion.
In accordance with the
International Accounting
Standards, the best fair value
is obtained from current
prices in an active market for
similar property in the same
location and condition, and
it is recommended that fair
value calculations of property
investments are supplemented
by an appraisal administered
by a professionally qualified,
independent expert with
experience in the location and
in the type of investment being
valued. In fact, the IASB is
unambiguous about the role of
the valuer, specifically in the
implementation of the IAS 40.
In any case, it is essential
that valuers recognise the
fundamental concepts and
principles of the IAS-IVSC;
given that on many occasions
appraisals will be used to add
value to property assets in the
company’s financial statements.
In particular, estimated
MARK CLIFFORD,
Managing Director
market values can be used
in accounting for mergers,
in recording fair value in
the balance sheets (whose
fluctuations directly impact
profit and loss statements), in
measuring the impairment of
assets, as well as in calculating
the Gross Asset Value (GAV).
Given that there are different
types of valuation reports,
depending on their purpose,
and that the work carried out by
appraisers is specific depending
on the final use of the reports,
it is of vital importance that
companies only use these reports
for their intended purpose.
In the specific case of valuations
used to incorporate the fair
value of real estate properties
in the balance sheets of listed
companies, auditors will verify
the accuracy of these appraisals
as part of the necessary field
work involved in formulating
their audit opinions, in view of
the direct impact they have on
annual reports.
CBRE participates in a
significant number of
investment property valuations
of listed Spanish real estate
companies, and it is a fact that
our valuations are increasingly
gaining more relevance, for all
the aforementioned reasons.
In Spain, the majority of listed
real estate companies present
It is also necessary to have an understanding of
a rental portfolio component,
with real estate property
investments on their balance
sheets that represent up to
75% of their total assets, and
approximately half of these
groups have chosen the fair
value method in appraising
their real estate investments.
With regard to non-real estate
companies listed on the IBEX
35 (the Iberia Index, Spain’s
principal stock exchange), some
present a significant real estate
component in their balance
sheets, though they do not
generally opt for the fair value
method, nor do they provide
valuation information in their
annual reports.
Nevertheless, in accordance
with the international
accounting standards, and
independent of whether the
entity chooses one method
or the other, it must declare
the fair value of its real
estate investments, as well
as the relevant methods and
hypotheses applied in the
determination of this value,
indicating whether it is
based on the appraisal of an
accredited, independent expert
or if the company itself has
determined the fair value.
Given the significance of
valuations, the importance
of guaranteeing that these
values are being calculated
by recognised and reputable
appraisers is evident; there are
issues of vital importance like
the methodology of valuations,
the responsibility that the
valuer assumes in submitting
his report, the orchestration and
maintenance of independence
among departments within
the same company, and the
compliance with regulations to
which they are subject.
We all talk of Market Value
but do we all share the same
interpretation of the concept?
It soon becomes apparent
to anybody working in the
property sector that, very
often, people have completely
different ideas of what “Market
Value” constitutes.
Global Capital flows have
made the harmonisation of
accounting and valuation
practices necessary. Only with
the harmonization of these
procedures will Investors really
be able to compare the financial
results of one company in one
country with those of a similar
type of company in another
country. Countries that ignore
this harmonisation and try to go
their own way are likely to be
the state of the market at the valuation date
starved of Foreign Investment
due to the inability of investors to
understand or trust, for example,
the basis of the valuation of the
investment portfolio of a listed
property company.
THE IMPORTANCE OF
GUARANTEEING THAT
RECOGNISED AND
REPUTABLE APPRAISERS
ARE CALCULATING THESE
VALUES IS EVIDENT
For valuers worldwide an
important step forward
towards harmonisation was
the adoption of a standard
definition of “Market Value”.
The International Valuation
Standards Committee (IVSC)
was set up by the RICS to help
harmonise Global Valuation
Standards and introduced a
universal definition of Market
Value, now used in over 75
countries.
The Accountants who were
also working towards Global
Harmonisation of Accounting
Standards, also had the
idea of standardising the
concept of Market Value but
unfortunately did not speak
Trends 2007
53
THE WHYS
OF VALUATIONS
to the IVSC nor the IVSC to
the International Accounting
Standards Committee (IASC), so
for the time being we have the
uncomfortable situation that the
Accounting world talk of “Fair
Value” and the Valuation world
of “Market Value”. However
International accounting
standards do concede officially
that we should consider the
two concepts as identical.
Hopefully, to avoid further
confusion, the two definitions
will be harmonised in the near
future.
So what is “Market Value”
and how should the agreed
definition be interpreted?
To summarise the official
definition, we have to imagine
a hypothetical sale and the
price that could be obtained
for a sale between unconnected
parties at a predetermined date,
reflecting all the advantages and
PATRICIA
GARCÍA DE PONGA,
Finance Director
disadvantages of the property
at that date. We must imagine a
sale under the conditions of the
market at the date of valuation.
Thus there is no element of
conservatism or sustainability
in Market Value, traditional
concepts used by valuers in
many European countries.
Market values will rise and fall
in rhythm with the market and
with supply and demand. As
valuers do not have a crystal
ball and are therefore unable
to foresee the future, the
Market Value provided will not
necessarily be attainable at any
future date, due to changes in
the market.
Valuers have to imagine a
transaction of the property,
even if our client does not
have any intention to sell or
if the market is exceptionally
poor and not a good moment
to market a property. When
MARK CLIFFORD,
Managing Director
demand is poor or non-existent,
it is not a valid excuse to say
that there is no market at that
moment in time and that as
no transactions have taken
place recently there is no
evidence of levels of prices
so we cannot value. Under
these circumstances a valuer
must pay more attention to the
sentiment and offers of any
purchasers in the market, as any
evidence of transactions that
exists may be historic and not
reflect the state of the market at
the date of valuation.
The principal way of
assessing Market Value is by
understanding the local market
and levels of prices pertaining.
When we buy a house we are
all essentially acting as valuers,
comparing prices, qualities
and locations. Properties with
views over Parks are worth
more than those without
views. Properties on the upper
floors of buildings are worth
proportionally more than those
on lower floors. Buildings and
urbanisations with swimming
pools and communal areas are
The more assumptions, the more
worth proportionally more per
m2 than those lacking these
facilities. Based upon our
analysis of the market we make
a decision as to whether the
asking price is acceptable or
whether to offer less.
Whilst it is fairly easy to
establish certain general
benchmarks in terms of
price per m2 (minimums and
maximums), every property is
essentially different from the
competitors and this is where
the subjectivity of the valuation
profession comes into play. As
any property developer knows,
there is no fixed mathematical
equation that can be used to
decide how much extra per
m2 can be charged for the
apartment with views over the
Park as opposed to an identical
apartment in the same building
without views. Similarly, on a
larger scale, a development site
that permits the construction of
residential units with sea views
will sell at a higher price per
m2 than a similar sized site on
the same urbanisation (often
contiguous) which does not
permit sea views.
Apart from studying
comparable sales transactions
to the property under appraisal,
it is also necessary to have an
understanding of the state of
the market at the valuation
date, as all transaction data by
its very nature is historic and
the market may have moved
since the date that the price for
the transaction was agreed. We
believe that in order to have
a complete understanding of
the market and so be able to
produce accurate valuations,
it is necessary to have access
to up-to-date information from
our Capital Markets and Agency
departments, who also transmit
to us most importantly the
actual sentiment of Investors
and developers looking to
invest in the Spanish Market at
that moment.
There are of course
mathematical methods used
to back up our opinions, such
as Discounted Cash Flows or
Residual studies; however,
there is no substitute for a
thorough knowledge of the
market and an analysis of
all transactions of similar
properties to that under
valuation. Due to globalisation,
with regard to commercial
property valuations, it is also
very important for commercial
hypothetical the valuation will be
property valuations to study
sales transactions of similar
properties in other European
Countries.
In reality even under IAS, total
transparency and comparability
of a company’s accounts will be
difficult, as Listed Companies
have the option of choosing
the cost or fair value approach
to accounting. If the fair
value system of accounting
is adopted, then this will add
more volatility to the results
of a company. However, the
effects are often over stated
when one takes into account
that in most Anglo Saxon
countries including the UK, the
concept of Market or Fair Value
has existed for accounting
purposes without problems for
the last 30 years.
RICS and IVS standards have
led to a simplification of
definitions of value. Whereas
previously we could provide
several different types of value,
from estimated values to forced
sale values, now we only have
Market Value. This Market
Value can be qualified by way
THERE IS NO SUBSTITUTE
FOR A THOROUGH
KNOWLEDGE OF THE
MARKET AND AN ANALYSIS
OF ALL TRANSACTIONS OF
SIMILAR PROPERTIES TO
THAT UNDER VALUATION
Trends 2007
55
THE WHYS
OF VALUATIONS
of assumptions. The idea is
that the person who reads the
valuation report understands
fully whether the value can be
relied upon or not. The more
assumptions there are, the more
hypothetical the valuation
may be and the less likely it is
that the value reported can be
obtained in that moment.
To understand the reasoning
behind this, it would perhaps
be illustrative to look at the
normal requirements of an
International Bank lending
money on a site for a shopping
centre development. Normally
the Bank will require the
valuation of the land at the date
of valuation and an estimate
of the potential value of the
property once complete and
fully leased. Under IVS, future
values should not be reported,
so the normal procedure is to
provide a valuation as at the
date of valuation assuming the
Shopping centre is complete
PATRICIA
GARCÍA DE PONGA,
Finance Director
according to the project and
fully leased. Obviously the
latter is not the Market value
that can be obtained at the
time of the valuation, but is
the Market value subject to
assumptions.
The report should also be
considered in relation to the
use for which it is prepared,
which is also clearly stated
in every report and should
be agreed with the client
from commencement of
the instruction. A report
prepared purely for internal
company purposes allows
much more flexibility in the
number of assumptions that
can be made as compared to
a report prepared for Secured
Lending Purposes where, for
example, a full due diligence
of all relevant information is
normally required. In any event
the report needs to be read in
its entirety to understand what
checks have been made of the
information supplied.
Another commonly
misunderstood concept is
to whom CBRE has legal
responsibility for the valuation.
Due to Privity of contract, CBRE
only has legal responsibility to
the Company or the person to
whom the report is addressed.
We are commonly asked by
MARK CLIFFORD,
Managing Director
clients for a valuation report
for Secured Lending Purposes.
When we ask for which Bank
they require the report the
normal reply is that the client
wishes to show the report
to several Banks but has not
decided on which Bank to use.
Firstly, if we were to accept
the instruction, the report
would be made based upon
the instructions and scope of
work agreed with this client
and CBRE would accept
responsibility only to the client
and not to any Bank. Although
the responsibility situation can
be remedied by the issue of a
reliance letter to the Bank by
CBRE at extra cost, the most
important consideration is that
as the client has instructed
CBRE the report is not totally
independent and may not
include all the information or
checks required by the Bank
– a conflict of interest exists
– which may lead to the Bank
rejecting the valuation report
and the client having to pay for
a second valuation from another
valuation firm that has had no
connection with the property
Aside from the value of the company’s property assets there
CBRE VALUES ONLY THE PROPERTY
ASSETS OF THE LISTED PROPERTY
COMPANIES AS AT A SPECIFIED
MOMENT IN TIME, COMMONLY
KNOWN AS THE GROSS ASSET
VALUE (GAV)
owner. It is therefore preferable
for the client to discuss the loan
requirements with the Bank
first and for the Bank to instruct
CBRE direct.
Whilst CBRE is especially
famous for the valuation of
the assets of the principal
Spanish Listed Property
Companies, it should not
be forgotten that CBRE is
a multinational company
with over 29,000 employees,
valuing many thousands of
listed property companies and
funds worldwide each year.
All properties worldwide are
valued in accordance with
IAS (International Accounting
Standards) to Market
Value. CBRE uses the same
methodologies of valuation
in all 356 offices worldwide.
This transparency and
consistency provides comfort
to International Investors when
making important investment
decisions.
CBRE values only the property
assets of the Listed Property
Companies as at a specified
moment in time, commonly
known as the Gross Asset Value
(GAV). We do not calculate
the Net Asset Value (NAV)
of the company’s assets. It is
then supply and demand for
the company’s shares on the
Stock Market that establishes
the price of the shares and
thus the value of the Company.
When investing in Real Estate
Company shares, Investors
value above all future estimates
of earnings, which may differ
considerably from historic or
actual earnings due to possible
future movements in the Real
Estate Market. For this reason,
property company shares
commonly trade at a discount to
net asset value when the market
is expected to fall in the near
future or at a premium when
the property market and prices
are expected to increase.
However, aside from the value
of the company’s property
assets there are other factors
that need to be considered
when valuing a company, such
as the value of the Brand, the
market coverage, the business
plan and development pipeline
and the team.
Whilst it is true that for an
Initial Public Offering of shares
on the stock exchange the
valuation of the property assets
of a real estate company is very
important, recently in Spain,
due to speculation over possible
mergers and acquisitions,
the value of most Real Estate
Companies’ shares has had little
to do with the Market Value of
their assets or even the with
the Spanish Real Estate Market
and its position in the property
cycle.
are other factors that need to be considered when valuing a company
Trends 2007
57
Internationalisation is the main new
element that the first decade of the
21ST century has contributed to real
estate activities.
58
4
INTERNATIONAL
MARKET
Trends 2007
59
AND NOW WHAT?
Whichever way you look at it, 2007
has been an extremely positive year
along the slow path towards the
“institutionalisation” of the Latin
American investment market.
JAVIER MARQUINA,
Investments Director for Latin America
and the Caribbean
CB Richard Ellis Miami
60 INTERNATIONAL MARKET
As usual, we have to focus on
the more anecdotal or informal
side of the day to day work
we do as agents, as reliable
statistics on total property
investment levels in the region
are conspicuously lacking.
Within CBRE, we have not
only had one of our best years
in various countries in terms
of deals overseen, but also a
remarkable year in terms of
enquiries processed, with many
investors left unsatisfied and
frustrated due to a notable lack
of product in the region.
Institutionalisation has its
advantages and disadvantages.
Perhaps one of these
disadvantages is the very
“lack of product”, resulting
in increasing prices and a
compression of initial yields,
which are at their lowest point
in a decline that began eight
years ago. However, looking at
the glass half full rather than
half empty, this is a sign of
an increase in liquidity and
therefore a decrease in risk.
The german funds, traditionally the barometer of
This phrase is not mine, but
one from one of our “frustrated”
clients; “he who does not
console does it because he does
not want to”.
The table below shows current
yield ranges by use type in the
region.
Analysing the yields displayed
above, we should ask ourselves,
who killed the goose that laid
the golden eggs? Investors
INITIAL YIELDS
(RANGES)
focusing not on initial yields
but rather on internal rates of
return over reasonable periods,
such as three to five years, as a
better indicator of the potential
offered by certain investments.
With regard to the mortgage
crisis and the drop in availability
of finance, there is little to be
said as far as Latin America
is concerned. Our markets
know all too used to a lack
OFFICES
RETAIL
INDUSTRIAL
BRAZIL
9.5%-10.5%
7%-10%
10.5%-11.5%
CHILE
7%-8%
(1)
9%-10%
MEXICO
7.5%-8.5%
8%-9%
8%-9%
NOTE (1): There is not sufficient evidence in Chile’s retail market to establish a reliable range.
who flocked to the region did
so in search of double digit
yields, something practically
impossible in more developed
markets today. Nonetheless, it
seems certain that in terms of
capital and rental values, there
is still potential for growth, and
in many cases we should be
of financing, and were in fact
almost fully developed without
it. In fact, there are examples of
transactions completed in Latin
America in the last quarter of
the year, with finance, and in
the height of the financial crisis.
In fact it has been the Spanish
banks, who have been the most
active in the region.
Today, it would be naïve to
say that the credit situation
will not have any effect on
the Latin American market.
There is no doubt that the
THE LATIN AMERICAN
MARKET IS CONTINUING
ALONG ITS PATH OF
TRANSFORMATION AND
INSTITUTIONALISATION,
AND INVESTORS
CONTINUE TO EXPRESS
AND DEMONSTRATE
THEIR INTEREST.
lack of liquidity in the market
will affect decision making at
portfolio level. At the end of
the day, Latin America still
represents a marginal share of
any global property portfolio,
and without liquidity it will
be the first to be disposed of.
However, this still has not
happened and in our opinion
for the following two reasons;
firstly, the products coming
onto the market displaying a
sufficient level of transparency
can de classified as prime, with
good contracts, good tenants
and good locations. Without
these characteristics, it would
not really be worth offering the
product to the international
market with any hope of closing
a deal. Secondly, the financing
structures that are proposed or
institutional investment are still active in Mexico and Chile
that are sought after by buyers
are relatively conservative.
Although values have risen
considerably, perceptions of
acceptable loan-to-value ratios
are still hovering around the
70% mark, reaching up to a
maximum of 80% in some
instances. The combination
of prime products and
conservative financing make
the banks feel more comfortable
when the time comes to
approve an acquisition.
There is still another
chapter to go in the story of
institutionalisation in the
region; the professionalisation
of property services, i.e. us.
CBRE is still the pioneer in
the region, with an expansive
network of offices and a
regional unity capable of
Trends 2007
61
JAVIER MARQUINA,
Investments Director for
Latin America and the Caribbean
CB Richard Ellis Miami
AND NOW WHAT?
seeing the woods from the
trees, and with aims to gain
greater coverage, promote
professionalism and offer a
wider range of services to
our clients. However, there is
still a lot of work to be done,
primarily in the after sales
phase. Property management,
administrative as well as
technical, is without a doubt
the service which today
offers most security to our
clients when the time comes
to invest. Our acquisition
advisory services have become
the benchmark to reach by
our competitors, whereas in
property management the
whole of the industry is still
very underdeveloped, in this
field it is developers such
as HINES who are gaining
market share at present. At
CBRE we are very conscious
of this and in fact our Chilean
operation is one of the pioneers
in the market and one of the
most advanced in property
management. Following the
AS THE MARKET
BECOMES MORE
PROFESSIONAL, AS
SERVICE PROVIDERS
WE WILL LOOK IN THE
COMING YEAR TO
INCREASE THE RANGE
OF SERVICES WE OFFER
recent merger with Tramwell
Crow, which has a business
almost exclusively dedicated
to property management in
Chile, the new CBRE is the
indisputable market leader.
Now it is time to apply our
know how to the rest of the
region. We are convinced that
2008 will be the year in which
it will happen.
Below we analyse in detail
some examples of the
exceptional investment deals
that have taken place in the
region, before giving any kind
of forecasts.
MEXICO
This year we were the leaders
in an “experimental” operation
led by the German fund Union
Investment (previously DIFA).
As one of the pioneers in the
Mexican office market, Union
Investment wanted to show
that it could not only enter the
market in Mexico, but also exit
with relative ease. Therefore,
Union Investment, which has
a portfolio worth over $300
million, put a building up for
sale that it had acquired just 12
months earlier. Situated in the
Santa Fe area of Mexico City,
the General Electric building
has 22,456 square metres of
office space let to multiple
tenants including General
Electric. Union Investment
bought the building in the
second quarter of 2006 as part
of a package of four properties
at a price reflecting an initial
yield of 9.25%. Only 12 months
later and through a marketing
campaign led by CBRE the
building was acquired at an
8.90% yield, resulting in a
capital gain of approximately
20%. Significantly, the buyer
was a Mexican investment
fund created through the new
Mexican law governing real
estate investment funds, or
“FIBRAS”.
Another significant deal was
made by DEKA, who having
finally entered the Mexican
market, they closed the year
with two office buildings
in its portfolio and a 30%
share in one of the country’s
most renowned industrial
developers, VESTA. We
would like to place particular
emphasis on the latter
operation, as it shows an
alternative path to entering the
Mexican industrial and logistics
market, which is a highly
competitive process. DEKA has
made a corporate investment in
VESTA, a company boasting a
network of warehouses spread
across the entire country,
with over 570,000 square
metres let and projects in the
pipeline to develop a further
305,000 square metres. DEKA’s
investment in the portfolio
Should certain investors pull out,
reflects an initial yield of 8.9%.
2008 will see a revision of the
tax system in Mexico, which is
expected to have a particularly
strong impact on the property
industry and could result in
higher tax contributions to be
endured by landlords when
disposing of assets. The effects
of these changes should be
watched closely, as it could
push investor interest away to
other areas of the region.
CHILE
Union Investment made
its second purchase of the
year, acquiring the Xerox
headquarters located in the
Huechuraba business park close
to Santiago Airport. The seller
was Fondo Independencia.
Xerox has a long lease contract
for the whole building that
Union bought for just over US$
15 million. With this recent
acquisition, the fund now has
two properties in Santiago,
both of them offices buildings.
It is quite possible that Union’s
entrance strategy in Santiago is
a repeat of Mexico, and it will
soon acquire a major portfolio
of properties. Given the smaller
size of the Santiago market, this
would give Union a dominant
position.
GLL, a Germanic-British
fund backed by the South
African investment bank
Investec, has also made a
series of acquisitions in the
same business park, but
in this instance they were
development projects. This
level of activity is a sign of
globalisation in real estate.
Although all of the details
have not been divulged, these
operations reflect an estimated
guaranteed return for the
developer of between 9 and
10%.
So much interest in a relatively
small market has caused
significant compression in
yields, now ranging between
7 and 8% for institutional
investors. This being said,
Chile’s domestic finance market
remains an exemplary model,
offering interest rates between
5 and 6% for commercial
mortgages, making it the only
country in the region where it is
possible to raise advantageous
local finance.
PUERTO RICO
Puerto Rico, a hybrid market
blending US stability and the
spicy rhythm of Caribbean
salsa, has played an important
part in regional activity this
year. As part of the sale and
leaseback mandate for the
Banco Santander portfolio,
we won the mandate for
the sale of two of the bank’s
flagship buildings on the Isla
del Encanto in the Caribbean.
welcome opportunities could be created
Closed in record time, the
operation brought in a dozen
offers from interested parties
around the world and beat yield
and capital value records in
the Puerto Rican market. The
purchase was finally agreed
with a group of local investors
at a yield below the 7.6% mark,
a barrier that before the start
of the marketing campaign
was considered unbreakable.
Paradoxically, the investment
totalling just over US$62
million was financed by BBVA.
We would highlight this
transaction as an example of
the added value we provide as
agents in developing markets
such as Latin America and
the Caribbean, in which our
professionalism and “added
value” is often questioned.
Our worldwide marketing
campaign, carried out in 50
days, brought in huge interest,
generating 12 qualified offers
and exceeded all expectations
of price and yield, in a
transparent and competitive
process.
Trends 2007
63
OTHER
FRONTIERS
It has become more and more common
for Spanish developers and investor’s
to have foreign assets in their real estate
portfolios, and this internationalisation
has only just begun.
MIKEL
MARCO-GARDOQUI,
National Cross Border Director
Aside from financial
turbulence and market cycles,
internationalisation is the
main new element that the
first decade of the 21st century
has contributed to real estate
activities. Last year was the
turning point. Between January
and June 2007, 57% of the
€119,000 million invested
in European tertiary real
estate involved cross-border
investments, ten percentage
points more than in the first six
months of the previous year.
It was the first six months that
produced this kind of margin,
but it won’t be the last.
The weak dollar did not
intimidate American investors,
who invested €21,500 million
in Europe between January and
June 2007, 55% more than the
€13,900 million invested during
the same period of the previous
year. British investors hold
second ranking with €11,500
million, an increase of 77% from
the €6,500 million invested
during the first half of 2006.
Most investment growth was
concentrated in Romania and
Most investment growth was concentrated
MANY SPANISH PROPERTY
DEVELOPERS HAVE OPTED FOR
GEOGRAPHICAL DIVERSIFICATION
AS A MEANS OF MINIMIZING RISK
Bulgaria, due to its recent
incorporation into the European
Union (as happened in the
Czech Republic and Poland
in 2004). The Romanian and
Bulgarian retail sectors are
preferred by investors who have
closed deals in other cities apart
from Bucharest and Sofia.
A QUALITATIVE
SPANISH JUMP
In the first half of 2007, Spanish
investment in foreign tertiary
real estate grew to €2,300
million, which is less than
half of the €4,700 million
invested in Spanish offices,
retail centres, and industrial
real estate during the same
period. Many Spanish property
developers have opted for
geographical diversification as a
means of minimizing risk in the
face of a residential sector slowdown. Many have concentrated
on residential transactions,
while others have opted for
diversification across different
products.
Destinations like Latin America
and especially the United States
have become more relevant
for Spanish foreign investors,
while Eastern European
countries maintain their
attractiveness, and by virtue
of their proximity, Morocco
and Portugal will become
increasingly more interesting in
the future. Moreover, investors
will continue to occupy very
select positions in consolidated
markets like London and Paris,
where the investment market
could offer opportunities
in Romania and Bulgaria
through corporate transactions
due to recent favourable fiscal
legislation.
The advantage of the
increasingly strong Euro
is significant to Europeans
investing in Latin America and
the United States, this triggers
considerable returns (especially
in Latin America) when
operating in investment markets
trading in dollars. This boom
has been intensifying since
the end of 2006, with a good
deal of interest concentrated
on office buildings in key Latin
American cities. Traditionally,
the Caribbean and Brazil have
been important destinations
for Spanish investors, and they
have been the springboard
to taking the leap in to more
complex countries like
Mexico, Chile, and Argentina.
With proper guidance, all of
these destinations hold good
investment opportunities.
Cancun (Mexico) and Brazil
have joined the list of classic
investment locations like the
Dominican Republic, Panama,
and Miami (which had been the
Trends 2007
65
MIKEL
MARCO-GARDOQUI,
OTHER
FRONTIERS
National Cross Border Director
DESTINATIONS LIKE
LATIN AMERICA AND
ESPECIALLY THE UNITED
STATES HAVE BECOME
MORE RELEVANT FOR
SPANISH FOREIGN
INVESTORS
focus for years) among small,
private European investors
purchasing second homes.
Recently, private Spanish
investors interested in
capitalising on investment
yields provided by the
strong Euro – whether in the
residential or the tertiary
sector – have begun to converge
on various U.S. cities. However,
it is essential to thoroughly
research the affects of the
mortgage crisis in this market
before committing to any
investment, regardless of its
attractiveness.
LOOKING EAST
Typically, the first step in the
internationalisation process
for many Spanish property
investors has been the Eastern
European countries, and among
them Poland has been the key
market. Distinctly different
from the Spanish market, it
is comparatively young, with
relatively good development in
the retail and office sectors, and
is already capable of attracting
prominent international
interest. The residential
sector is undergoing heavy
development, with considerable
unsatisfied demand, promising
medium-term forecasts, and
the presence of important
international operators.
In the first nine months of 2007,
the average price of a new flat
in Warsaw increased by 12%,
to about €2,329/m². Typically
measuring 64.4 m², the total
average price of a Warsaw flat
equates to around €150,000,
though location is a factor.
For example, in the centrallylocated neighbourhood of
Sroidmiescie, prices can reach
€10,000/m².
The number of residential
properties in construction grew
by 24% between July 2006
and June 2007, equating to
around 38,500 new flats, or 5%
of the city’s residential area.
Despite significant demographic
displacement toward periphery
neighbourhoods (likely due
to high prices in the urban
centre), demand continues
to exceed supply.
NEW OPTIONS
Recent alternatives for crossborder real estate investment
(and those which demand
more careful selection) include
Russia and China. The Chinese
Internationalisation of the main markets.
Total percent of cross-border activity.
47
SPAIN
UNITED KINGDOM
40
18
41
56
ITALY
44
35
SWEDEN
57
61
FRANCE
GERMANY
2004
70
17
74
1ST S 2007
In the first nine months of 2007, the average
investment market is a major
international objective due
to its vitality and capacity for
economic growth. Nevertheless,
there are significant obstacles
to entry and certain difficulties
for international investors in
honing their analyses, making
alliances with local partners
and government support
essential.
However, there is already a
prominent group of investment
banks gradually gaining
influence. In general, these new
investors concentrate on key
cities like Beijing, Shanghai,
and Canton, and tend to favour
the office market, as it is the
most transparent.
The Russian property market
also presents great growth
potential. The Moscow office
park, for example, provides
more than seven million m²,
and very strong demand has
reduced vacancy rates to
less than 3%. Furthermore, a
conspicuous shortage of offices
and prime assets has provoked
price inflation.
Something similar is happening
in Moscow’s local retail market,
which climbed 25% in the
last 18 months, making it the
second most expensive rental
market worldwide at €8,000/
m² per year, just behind New
York’s Fifth Avenue, which
peaked at €11,400/m² per year.
Based on accumulated
experience in all these
countries, at CB Richard
Ellis we understand that the
highest priority for Spanish
investors in entering these
markets is the assurance of
precise, quality analysis of the
investment opportunity in an
environment that is not always
transparent, as well as fast and
firm decision-making skills.
They are endeavors that require
horizontal structures and
ample doses of independence.
Moreover, specialised legal,
civic, and real estate counsel
will be indispensable, and it is
recommended to compliment
any investment strategy with an
adequate public relations and
marketing policy.
price of a new flat in Warsaw increased 12%
Trends 2007
67
The market still offers interesting
possibilities for investors. Recent
events merely correspond to the natural
evolution of the given markets, which
are themselves cyclical.
68
5
NATIONAL
MARKET
Trends 2007
69
REAL ESTATE
INVESTMENT
IN SPAIN
The real estate sector seems to have
reached a high point in one of its
cycles. Depending on demand, the
next stage will be different for every
sector, but overall investments will
maintain their vitality.
EDWARD FARRELLY,
Research Director
70 NATIONAL MARKET
Over the past few years, the
real estate sector has grown
accustomed to prosperity, in
both the residential and the
tertiary sector, in letting as
well as in investments, which
moreover, has provided high
levels of growth to the economy
on the whole and has largely
been driven by internal demand.
In the last few months, the
situation seems to have changed.
Since the end of summer 2007,
there has been an outpouring
of negative media coverage, as
if the market had surpassed the
zenith of its current cycle and
ahead lay a period of inferior
growth, which on the whole, we
do not agree with.
At CB Richard Ellis we want to
welcome better media coverage
of the real estate market. We
believe that a more thorough
and level-headed analysis
of different trends will be
beneficial to everyone. We
maintain that (i) it is essential to
differentiate between products
The investment market for offices has been
and sectors, and that (ii) changes
have not come suddenly, in
fact, we have been aware of the
possible risks that may affect the
market for some time.
Hence, it is worth reiterating
that, in our opinion, the
market still offers interesting
possibilities for investors,
and that recent events merely
correspond to the natural
evolution of the given markets,
which, are themselves cyclical.
YIELDS AS AN EXAMPLE
Yields provide a clear example
of this argument. If we review
the previous edition of Trends,
we read on page 43 that, “it
is difficult to see a significant
downward trend in yields,
but investors hope that future
increases in rents will offset
the situation, thanks to strong
demand in the markets and
the shortage of available
prime locations.” .
As a general rule, real estate
yields are measured according
to that which is devoid of risk
or low-risk; i.e. treasury bonds.
In other words, the investor
must receive compensation for
assuming the real estate risk.
This figure may be around 3.5%,
the sum-total of depreciation,
liquidity and possible unpaid
fees, therefore the minimum
A MORE THOROUGH AND LEVELHEADED ANALYSIS OF THE
DIFFERENT TRENDS WILL BE
BENEFICIAL FOR EVERYONE
yield sought by the investor will
be that of bonds plus 3.5%.
In December 2007, the yield
on ten-year treasury bonds was
around 4.3% after fluctuating
between 4.1% and 4.6% in
previous months. Therefore, the
investors’ objective should be in
the range of 7.8%
At the same time however,
prime office yields were at
4.5%. Reconciliation of the
discrepancy between what
the investor seeks and what the
market supplies will only be
achieved through (i) a hike
in revenues, and/or (ii) a
higher yield.
For over a year, the reduction
of this differential has been
achieved with the favourable
growth of revenues, which, in
the case of offices in Madrid,
reached an interannual high of
22% at the close of the third
quarter of 2007. It is predicted
that 2008 will be another
positive year in terms of rental
prices, though it is unlikely that
figures will reach as high as the
previous year.
THE INVESTMENT PACE
Forecasting the immediate
future requires an analysis of
2007’s market trends. In the
first nine months of 2007,
the volume of real estate
investments across office,
retail, and industrial properties
reached 6,000 million euros,
which was even higher than the
7,000 million euros gained over
stimulated significantly with the influx of assets from large corporations
Trends 2007
71
REAL ESTATE
INVESTMENT
IN SPAIN
EDWARD FARRELLY,
Research Director
the whole of 2006. It is worth
noting that 2006 was a record
year for real estate investment in
Spain, with an increase of 50%
compared to the previous year.
At first glance, the figures
indicate intense demand, though
each sector runs at its own pace.
For example, in the first nine
months of 2007, investments in
offices in Madrid exceeded the
total investments closed in 2006,
while shopping centres barely
reached 50% of the investments
compared to the previous year. It
is important to note that, though
less frequent, shopping centre
transactions command a larger
outlay than offices (thereby
generating more volatility in
the figures), and that office
investments were boosted by
corporate sales.
The investment market for
offices has been stimulated with
the influx of assets from large
corporations. In the last few
months, certain financial entities
and multinational businesses
have put a significant number of
YIELDS HAVE BEGUN
TO RISE IN MOST
COUNTRIES
72 NATIONAL MARKET
properties on the market.
This process is linked to a
more comprehensive corporate
strategy. The sale of real estate
assets allows for (i) better
positioning within the sector,
and/or (ii) the relocation of
various departments of the
business to one location. At
times, the company can opt
to stay as the tenant for a predetermined period, under a
sale and leaseback agreement,
which usually affords several
advantages:
• Off balance-sheet financing
• 100% deduction of lease
contract costs.
• Reduction of debt ratios,
return on equity (ROE) and
return on assets (ROA).
• The release of capital from
property assets for use in the
core business, with greater
returns.
TURBULENCE AND ITS
EFFECTS
Apart from other considerations,
there is no doubt that the
deceleration the market has
experienced since last summer
is due primarily to so-called
financial turbulence, and the
coming months will confirm
if indeed a structural change
is taking place. Within the
financial sector itself, financial
entities fail to recognise their
own exposure or that of their
competitors.
We are, in short, in a holding
pattern. Uncertainty has caused
financial entities to lose interest
in assuming more risk, thereby
toughening credit conditions.
Banks dissect every transaction
in order to summarily
minimize risk, even requesting
guarantees at corporate level.
As a consequence, research
requirements are broadened,
resulting in delays of approval
for some transactions.
This new juncture increases the
possibility of a slight recovery
in yields. It is already evident
in prime properties, and in the
future will extend to secondary
assets – those of inferior quality
or poor location – since greater
competition in pricing directly
impacts on yields.
It is certain that the foreseen
moderation in price increases
and the toughening of financial
conditions have changed
property investors’ perceptions
throughout Europe. Yield
recovery has already begun in
most countries. In the third
quarter of last year, industrial
real estate investments in
Europe maintained more than
acceptable returns: 65,000
million euros, 24% greater than
in the same period the year
before and a new record for
that quarter.
Credit restrictions have
increased the cost of debt,
As in all moments of cyclical change, portfolio
resulting in reduced investment
opportunities for highlyleveraged investors. Equity
investors, however, have
benefited, and have an added
advantage when it comes to
negotiating.
Furthermore, there are hopes for
increased activity from German
funds, which have generated
very positive cash flows over
the past year. Between October
2006 and September 2007,
they recorded a net cash flow
of nearly 8,500 million euros,
while in the previous 12 months
to that, their negative cash flow
was almost 12,000 million
euros.
They will benefit further from
the fact that German investors
are withdrawing their money
from bonds and capital
markets. The German funds
that recovered first were those
who had foreign assets, though
in the last few months the ones
that have seen the most positive
changes are the ones focused on
the domestic market.
TRANSNATIONAL
PERSPECTIVE
As in all moments of cyclical
change, and as in every mature
and complex market, portfolio
diversification is a good policy
in order to minimise risk. Many
investors already practice it, as
demonstrated by the peak in
cross-border investments. If one
takes on a broader perspective,
investments in real estate assets
are more likely to complement
investments to stocks and
bonds, a possibility not only
restricted to large corporations.
Undoubtedly, the range of
opportunities for private
investors will grow substantially
the main alternative for private
real estate investors.
The need for European
standardisation of Reits is
particularly urgent in Spain,
which finds itself marginalised
to a certain extent. The
current real estate investment
funds (Fondos de Inversión
Inmobiliaria, FII), which
attract most private real estate
investment, have had their
profitability questioned, and
a suitable solution remains to
be found that will open them
up to non-residential property
investments. In the European
field, limiting the possibilities of
an individual Spanish investor
to the current FII formula
would prematurely hinder his
profitability in comparison to
more competitive products.
in the future. Throughout
Europe, indirect channels
of investment will become
a mainstay. This boom
could intensify still more if
international regulations are
standardised, which is not
currently happening with Real
Estate Investment Trusts, (Reits),
diversification is a good policy in order to minimise risk
Trends 2007
73
INVESTMENTS
AFTER
THE STORM
We find ourselves in the midst of a
changing market that at present is
difficult to predict. 2007 began with an
abundance of activity and confidence,
where market fundamentals generated
some of the lowest yields in history.
JAVIER KINDELAN,
National Institutional Investments Director
74 NATIONAL MARKET
The prolonged scarcity of
quality products and the high
levels of liquidity amongst
investors predicted a rally of
transactions throughout 2007.
The summer arrived, and with
it a turn-around. Since then, we
have observed the scope and the
globalization of the economy
in general and the real estate
market in particular. Initially, it
spread through America with
subprime mortgage rates, and
simultaneous misgivings in the
financial sector. The knock on
effects were quickly passed on
to Europe, and it did not take
long to induce a slowdown in
real estate investments in Spain.
This domino effect was
accompanied by very low
residential sales rates and the
subsequent slowdown of the
construction sector, resulting
in numerous international
investors curbing their opinion
that the national market and
its sustainability warrant the
spotlight, as they wait to see
The different variables continue to confirm the upward
where the market goes.
At this juncture, any prediction
of where the market is headed
over the next few months is
extremely uncertain. Hence,
the only sensible solution is to
carry out a thorough analysis
of the current situation.
Macroeconomic data indicates
that Spain is maintaining higher
Gross Domestic Product growth
than the European average.
There are signs of a slowdown
in comparison to twelve months
ago, however figures will
continue to be positive.
If we apply the analysis
to growth, or company
transactions, or domestic
consumption, the different
variables indicate that the
sustainability of the tertiary real
estate market is based on solid
fundamentals.
If this data is broken down by
sectors, it shows the continued
reduction in the proportion of
available office space in key
cities, as well as a healthy take
up rate in all of them. Rents
have experienced increases of
up to 25% in prime areas, and
given future supply, we do not
foresee any sudden fluctuations
in supply and demand that
could affect rental prices.
Spanish real estate firms and
investors dominate the office
investment market because
their confidence in the sector
and their general principle
of preserving private equity
has enabled them to consider
acquisitions more aggressively
than their international
counterparts.
NO BIG CHANGES
Naturally, one would think
that logistics and distribution
areas in the industrial sector, as
well as commercial real estate,
would be particularly affected
by a hypothetical economic
slow-down or a possible
reduction in the country’s
domestic consumption.
However, none of these sectors
seem to be suffering major
changes, and within the next
few months, we will be able
to interpret the results of 2007
more accurately.
Be that as it may, these sectors
are experiencing strong growth.
In logistics, the continual
shortage of urban land, the lack
of available finished product,
and the growth of merchandise
transportation enables this
constantly maturing sector to
offer interesting opportunities,
mainly in areas with significant
rental increases and the most
consolidated growth.
The Spanish logistics sector,
which functions primarily
in the Iberian market,
offers institutional and
THERE ARE SIGNS OF A SLOWDOWN
IN COMPARISON TO TWELVE MONTHS
AGO, HOWEVER FIGURES WILL
CONTINUE TO BE POSITIVE
trend that the retail sector has seen over the last few years
Trends 2007
75
INVESTMENTS
AFTER
THE STORM
JAVIER KINDELAN,
National Institutional Investments Director
GIVEN FUTURE OFFICE
SUPPLY, WE DO NOT
FORESEE ANY SUDDEN
FLUCTUATIONS IN
SUPPLY AND DEMAND IN
THE NEAR FUTURE
private investors (primarily
international), the opportunity
to invest in good quality
products, with medium or longterm rental contracts and higher
yields than other sectors.
For its part, the commercial
sector of small, medium, and
large areas has not stopped
growing and continues to offer
solid opportunities to a growing
number of investors who are
convinced that the sector has
good potential. Retail parks
maintain their value even when
faced with changes in consumer
habits. The same is true for
large shopping centres that
combine leisure, restaurant, and
retail spaces, or other uses as
anchors.
The different variables continue
to confirm the upward trends
that the retail sector has seen
in the last few years. The key
players (or investors) continue
to be international, though
since mid-2007 they appear to
be less interested in projects
76 NATIONAL MARKET
under construction or those
presenting higher risks, and
have focused their attention on
more consolidated products.
YIELD RECOVERY
Yields and their evolution were
arguably the main concern for
investors at the close of 2007
and they continue to be the
only measure for the majority
of investors when buying and
selling. It appears that last
year was the end of a series
of record lows and yet yields
maintained their level despite
the increase in interest rates,
this consequently reduced
investors’ margins.
Everything indicates that
yields are readjusting in the
majority of European markets,
mainly due to the uncertainty
of the financial sector, which
logically affects the real estate
sector. If the levels of financing
have reduced sharply since
the summer, it is reasonable
to think that certain banks
will toughen their financing
conditions, that the amount
leveraged per transaction will
decrease, and that the Spread
as a finance cost in the majority
of cases will increase for riskier
projects, thus leading to an
upturn in yields.
In the end, recoveries will
vary depending on the sector
and the implicit risk of each
investment opportunity,
which will mean a minor
readjustment in some betterlocated opportunities, i.e. those
that are in more consolidated
areas and those whose rents
are anti-cyclical and a greater
variation can be expected for
those projects where there may
be considerable supply in the
area or less rental security.
It is possible that in the near
future, if indexed interest
rates fall and thereby increase
investors’ margins, that
the growing pressure on a
readjustment of yields may fall
away. However, if they continue
to rise, it is possible they will
experience greater readjustments.
Without wanting to sound
too optimistic, it is important
to remember that yields may
rise owing principally to the
high price and availability
of financing, rather than
substantial changes in market
fundamentals.
Retail parks maintain
Though few deals have been
closed since the summer
(further complicating a market
diagnosis), they have been
significant and lucrative, such
as the Santander Group’s
(Grupo Santander) asset sale,
which attests to the liquidity of
investors.
In fact, private investors are
more and more in the forefront.
They now show greater capacity
to compete with institutional
investors, especially for
products where there is not so
much need for financing. They
therefore have the potential to
attain considerable prominence
in this sector.
The current market certainly
contains a large number of
investment opportunities. This
could be interpreted as an
attempt on the part of investors
who have realised that the
market has peaked, to make
the most of the added value
in their assets, or as a strategy
by listed real estate companies
to boost results when facing a
slow-down in residential sales,
or it may be that alternative
investments are beginning to
attract a specific investor who is
concerned with having an overexposed property portfolio.
Whatever happens, if the start
of 2008 brings better financial
prospects, and if market
fundamentals adjust based on
the aforementioned principles,
liquidity in the market will
tend to concentrate on quality
products and yields will
increase for riskier products.
their value
Trends 2007
77
OFFICES CONTINUE
TO BE IN FASHION
Offices reached a good cruising
speed in 2007 and everything
indicates that this pace will be
maintained in to 2008.
ÍÑIGO ENRICH,
National Office Agency Director
78 NATIONAL MARKET
A lot has been said about the
strength of the office market in
2007. Prices and take-up rates
have hit record highs, vacancy
rates in the main business areas
have dropped significantly, and
most importantly, positive net
take-up seems to have settled at a
healthy level for this market.
The office market is, without a
doubt, in fashion. Consolidation
of space, efficiency,
sustainability and originality are
all becoming more important,
and the majority of businesses
want to get onboard in order
to save on operating costs and
bolster their image.
In view of this trend, many new
office projects have entered
and will continue to enter the
market. One of the key features
of this new office space, and
one that will continue to be of
more and more importance, is
sustainability, which is vital for
those companies that want to
improve efficiency, and protect
the environment.
Quality is another essential
characteristic. Developers
and investors whose tertiary
portfolios include some of the
most emblematic projects on
the international scene deserve
special mention. For example
Over the next few years,
CONSOLIDATION OF SPACE,
EFFICIENCY, SUSTAINABILITY AND
ORIGINALITY ARE ALL BECOMING
MORE IMPORTANT
Rise in office construction rate over the past
24-30 months in Europe
0
10%
20%
30%
40%
50%
MOSCOW
BUDAPEST
Madrid’s Portico building,
developed by Hines and
Monthisa, has been awarded
2007’s Mipim Prize for best
business centre. Designed by the
architectural firm ‘Skidmore,
Owings & Merrill’ (SOM) and
Rafael de La-Hoz Castanys, it
is currently Grupo Marsans
headquarters.
Though currently without
accolades, landmark buildings
will establish a clear before and
after line in office construction
in Spain. New office projects are
being constructed in Madrid,
Barcelona, Valencia, Malaga and
Zaragoza, as well as in Bilbao,
Palma (Mallorca), Alicante,
Murcia, and many other cities
that are pushing to modernise
their business parks.
Architects of many nationalities,
as well as foreign and national
developers and investors are
all contributing to Spain’s
metamorphosis. The skylines
of Madrid, Barcelona, and
Valencia are all modernising
thanks to projects like the Four
Four Tower Business Area, Fira
Tower, Aqua, amongst others.
These architectural masterpieces
will accommodate important
national and international
headquarters as well as public
organisations, and will be
selected on the basis of their
uniqueness, their efficiency, and
their technological innovations.
Everything indicates that
over the next few years the
evolution in the innovation
of building construction will
continue. Also, we will see
many companies change
their criteria when selecting
an office. Environmentallyfriendly projects will be
prioritised, as well as those that
provide operating cost savings,
whether due to effective use of
space or low levels of energy
consumption.
innovation will continue to improve
PRAGUE
AMSTERDAM
MADRID
WARSAW
FRANKFURT
LISBON
BRUSSELS
BARCELONA
MUNICH
VIENNA
HAMBURG
BERLIN
LONDON CITY
MILAN
COPENHAGEN
ILE DE FRANCE
CENTRAL LONDON
LONDON WEST END
PARIS CBD
VACANCY RATE 3RD QUARTER. 2007
NEW SUPPLY IN 2 YEARS (% PARK)
Trends 2007
79
NEW STRATEGIES
OF THE SPANISH
CHAINS
LUIS ARSUAGA,
Hotel Investments Director
80 NATIONAL MARKET
The hotel chains seem to have
decided to expand and focus
on management contracts
rather than acquiring new
properties, two changes
which could significantly
transform the sector.
CURRENT OUTLOOK
For many years Spain has been
a world leader in tourism.
As a country rich in culture,
and more importantly, with a
favourable climate and many
kilometres of coastline and
beaches, for years Spain has
attracted tourists from every
corner of the world.
It is in part for this reason
we have a very professional
national hotel sector and some
of the world’s most important
hotel chains.
One of the most relevant
characteristics of the Spanish
hotel market is the low level
of market share concentration
amongst the largest chains. It is a
market with numerous players,
where the largest market share
Hotel chains market share - Spain
(that of Sol Meliá), is 4.83%.
41% of Spain’s hotel rooms are
managed by independent groups
and 42% by small chains. In
second place to Sol Meliá in
terms of market share is Riu
(1.84%), followed by NH Hotels
(1.78%), Barceló (1.54%) and
Iberostar (1.46%).
MUCH MORE
CHANGE TO COME
In such a segmented market,
logic would suggest that
significant changes in the
coming years are a distinct
possibility. The success of the
chains comes down in part to
the conquest of new markets
by expanding both nationally
and internationally. It is
important for a client loyal to
his brand of hotel to be able to
find it wherever he goes in the
world; this is a consequence
of market globalisation.
The international chains
SOL MELIÁ
4,83 %
RIU
1,84 %
NH
1,78 %
BARCELÓ
1,54 %
IBEROSTAR
1,46 %
GROUP H10
1,23 %
FIESTA
1,06 %
HUSA
1,04 %
PRINCESS
0,99 %
AC
0,92 %
OTHER CHAINS
42,29 %
INDEPENDENTS
41,02 %
– Intercontinental, Marriot,
Hilton and Starwood, amongst
others, were the first to embark
on an aggressive international
expansion strategy, mainly by
signing management contracts
in order to get brand exposure.
Nowadays the chains no
longer want to own their own
buildings, they want to stick
to what they really do best,
managing hotels.
Hotel supply has increased
considerably in Spain in recent
years, and the competition
keeps on getting stronger. For
this reason, many hotels that
worked well before the year
2000 and made bumper profits
are beginning to suffer, and it
is expected that they will have
to opt to sell out or become
managed by larger hotel chains
with stronger sales. There
will be a lot of changes in the
83% market share currently
occupied by independent
groups and small chains, until a
more logical and less segmented
distribution of market share is
reached.
Another of the more significant
consequences of the fierce
competition in the Spanish
market (not only due to the
number of hotels, but also for
having to compete with the
residential market, capable
of paying higher prices for
buildings in the best positions)
is the search for more profitable
locations by Spanish chains.
NEW MARKETS
This tendency is not new;
for years the Spanish hotel
chains have been setting up
in new markets. First it was
the Caribbean, where a large
number of Spanish chains, in
particular the Majorcan ones,
saw a business opportunity.
Barceló, Iberostar, Riu, Sol Meliá
and others, set out to conquer
Trends 2007
81
NEW STRATEGIES
OF THE SPANISH
CHAINS
LUIS ARSUAGA,
CUBA
SOL MELIA
TOTAL
NUMBER
OF BEDS IN
THE AREA
60,000
24
BARCELÓ HOTELS
3
IBEROSTAR HOTELS
2
RIU HOTELS
2
GRUPO GLOBALIA
4
BAHAMAS (U.S)
RIU HOTELS
DOMINICAN REPUBLIC
1
SOL MELIA
4
GRUPO PIÑERO
8
BARCELÓ HOTELS
10
IBEROSTAR HOTELS
5
GRUPO GLOBALIA
5
PUERTO RICO
SOL MELIA
SOL MELIA
5
GRUPO PIÑERO
3
BARCELÓ HOTELS
GRUPO GLOBALIA
GRUPO PIÑERO
1
RIU HOTELS
3
ARUBA (HOLLAND)
RIU HOTELS
1
12
IBEROSTAR HOTELS
RIU HOTELS
1
JAMAICA
MEXICAN CARIBBEAN
8
13
10
COSTA RICA
SOL MELIA
3
BARCELÓ HOTELS
4
45% OF THE TOURISTIC MARKET SHARE IN THE AREA IS IN THE HANDS OF BALEARIC
HOTEL CHAINS. THE REST BELONGS TO UNITED STATES, CANADA AND EUROPE.
this market where land prices,
construction costs and operating
costs (of personnel, etc.) were
considerably lower.
Mexico, the Dominican Republic
and Cuba were countries with
associated risk and judicial
insecurity, but the bet paid
off for the Spanish chains and
straight away they noticed that
the timeframe to recover their
initial investment was reduced
to three to four years whereas
this could take 18-20 years for
projects undertaken in Spain. At
present it is the Spanish chains
that dominate this market; they
manage 45% of tourism in the
Caribbean area (60,000 rooms).
To begin with, they concentrated
on the Spanish speaking
islands (Cuba, the Dominican
82 NATIONAL MARKET
Republic, Mexico), but now
they are also focusing on other
English speaking islands, such
as Jamaica, Aruba and the
Bahamas), where Spanish chains
now have a real presence.
Since the psychological barrier
of opening and operating in
foreign countries was overcome,
the Spanish hotel groups
have continued to diversify
and search for less developed
markets within the tourism
industry.
COMPETING
DESTINATIONS
At the same time as the national
market was suffering from an
over-supply of hotels, some
of which were falling into
obsolescence, new competing
destinations began attracting
the tourism markets that were
traditionally the most profitable
for Spain; the European market
and in particular the German
and English markets.
Croatia, Tunisia, Turkey,
Morocco, Greece and Egypt
began developing their tourism
sectors and building luxury
hotels. At the same time
new airline routes to these
destinations were opened,
allowing the holidaymakers
who would previously have
been guaranteed to flock to the
Canaries or Majorca to choose
between different destinations,
some of which were cheaper
and with a much newer hotel
supply than Spain had to offer.
The national chains that
detected the Spanish market
was beginning to show signs
of saturation decided to set up
and open hotels in these new
destinations.
This tendency to enter foreign
markets has not been confined
to seasonal hotels. The urban
market, which is generally more
profitable than the tourism
market (as business clientele
are a constant source of income
for hotels), has been a market in
which the Spanish chains have
been positioning themselves
in recent months. This has
been particularly visible in the
European urban market (not
omitting cities such as New
York), often through hotels
built by Spanish developers
undertaking projects and
building hotels in the larger
cities of countries such as the
For years the Spanish hotel chains
Czech Republic, Hungary,
Poland, Romania, Bulgaria and
even Italy, Portugal and the
United Kingdom.
One of the most significant
deals to have taken place
in recent months was one
involving Barceló, who leased
20 hotels (2,872 rooms) in
historic buildings in the United
Kingdom’s main cities.
Other Spanish groups with
active international expansion
strategies are:
HOTEL CHAINS
Sol Meliá: this chain has for
some time now had a relatively
aggressive international
expansion policy. The company
wants to grow in Spain, but
only through management
contracts (it has created an asset
management department that has
an annual divestment objective
– preferably for assets in Spain
– of approximately 100 million
euros), and is concentrating most
of its efforts outside of Spanish
borders: in particular Latin
America and Europe but also in
Africa (Egypt and Tunisia) and
Asia (Indonesia, Malaysia and
Vietnam).
At the end of 2007 Sol Meliá
acquired the German chain
Innside, which had a total
of 8 hotels that were already
operating and another 4 in the
project phase (all of which are
located in Germany, except
one of the projects which is in
Vienna). Via this deal Sol Meliá
now has 27 hotels in Germany.
Iberostar: is another of the
bolder and more dynamic
chains that concentrates its
international efforts in the
Americas, Europe and Africa.
In the Americas it has just
announced it will carry out three
new projects in the Mexican
state of Nayarit, consolidating
the Majorcan chain’s supply in
Mexico, where it currently has
eight complexes with a total of
3,008 rooms.
In July it also opened the
Iberostar Rose Hall Beach”,
its first hotel in Jamaica. The
group also has five hotels in
the Dominican Republic, five
in Cuba and three in Brazil.
In Europe and Africa it has
thirteen hotels in the Greek
islands, six in Bulgaria, eleven
in Tunisia, one in Morocco, two
in Croatia, one in Turkey and
one in Montenegro.
have been setting up in new markets
Developer and investor groups
Fadesa-Martinsa: Fadesa is
one of the developers that has
strengthened its international
expansion the most. It has just
announced that it will undertake
a macro project in the Mexican
state of Baja California called
“Loreto Paraíso”. Along with a
residential development and four
golf courses, it will build over
7,000 rooms in luxury, boutique,
and five star hotels as well as in
time-shares and condo-hotels.
IN SUCH A SEGMENTED MARKET,
LOGIC WOULD SUGGEST THAT
SIGNIFICANT CHANGES IN THE
COMING YEARS ARE A DISTINCT
POSSIBILITY
Trends 2007
83
NEW STRATEGIES
OF THE SPANISH
CHAINS
LUIS ARSUAGA,
This will be the developer’s
fourth project in Mexico,
the previous three were in
Guadalajara, the state of Nayarit
and in San Miguel de Allende.
Morocco is another of Fadesa’s
target countries, where it has
been operative since 2000.
Some of its most significant
developments are Saïdia
(16,000 hotel beds), Smara
(eight hotels of four and five
stars), Tangier, Marrakech,
Rabat and Casablanca.
Hansa Urbana: has just
acquired 35.5 million square
metres of land with seven
kilometres of beach front in Los
Cabos (south Baja California,
on the pacific coast of Mexico)
where it plans to build the
“Cabo de Cortés” complex,
with 3,000 hotel and residential
units in the first phase. The
scheme will also include four
golf courses, a marina with 400
moorings, an airport, as well
INTERNATIONAL CHAINS HAVE SHOWN
SPAIN TO BE AN ESSENTIAL MARKET WITHIN
THEIR EXPANSION STRATEGIES
as retail, sport, and leisure
elements. In addition to this
project, Hansa also developed
“Novo Cancún” on the
Caribbean coast of Mexico.
Meridia Capital: is a fund based
in Barcelona which is made
up of 70% Spanish capital
and is focused on investing in
high-end hotels. The first two
establishments it acquired are
located in Santiago de Chile;
the Ritz-Carlton Santiago (five
stars, 205 rooms) and the
Crowne Plaza Santiago (five
stars, 293 rooms).
These are a few examples
of Spanish hotel chains and
investor-developer groups that
have decided to diversify and
try their luck in other markets.
However, there are many other
groups following the same path;
NH Hotels, Riu Hotels & Resorts,
Globalia Hoteles, Hotetur,
Hotusa, Vincci Hoteles, Vime
Hoteles, Hines, Metainversión,
Iberdrola Inmobiliaria, Grupo
Dico, Inmobiliaria Chamartín,
Nyesa-Accerto, Wilcox, Anida,
Valdepromo, Grupo LAR,
Diursa, etc.
INTERNATIONAL CHAINS
IN SPAIN
Whilst the Spanish chains have
been exploring foreign markets
as part of their strategy to have
a presence in all world markets,
the international chains could
not be absent in a country with
as much tourism potential as
ours. The Spanish market has
never been an easy one to enter,
as the competition between
the national hotel groups is
84 NATIONAL MARKET
Barceló has leased 20 hotels (2.872 rooms) in
fierce. Nonetheless, in recent
years the international chains
have pushed hard to establish
themselves and, thanks to
their brands and strong sales,
have managed to open hotels,
primarily through management
contracts.
Until not long ago, it was only
Accor (particularly through its
Ibis brand) and Intercontinental
(Holiday Inn, Holiday Inn
Express, Intercontinental)
that had any presence worth
mentioning in the Spanish
market. Now however,
other global chains, such as
Starwood, Hilton, Travelodge,
Marriott and Rezidor Group
have shown that Spain is an
essential market within their
expansion strategies and have
started to open hotels in cities
as well as holiday destinations.
All of these chains wish to grow
in the Spanish market either
through management contracts
or franchising. This aspiration
happens to coincide with the
mentality of Spanish developers
and investors, averse to taking
on the risk of a business in
which they are not experts,
such as running hotels. As
property owners become more
accustomed to the business, the
more open they become to the
hotel sector and more willing
to enter the market, signing
management contracts with
hotel groups and taking on risk
in exchange for a greater return
than that available in other
property sectors. It is expected
that in the next few years there
will be a stronger presence
of international brands in the
Spanish hotel industry under
these sets of circumstances.
A NEW SCENARIO
By way of conclusion, it should
be noted that the hotel market
is becoming more and more
globalised; all chains are trying
to have a presence in as many
destinations as possible. From
now on, all Spanish chains will
continue to strive for strong
international expansion, whilst
the international chains will
forcefully continue to break
into the domestic market. The
Spanish hotel market will
experience consolidation,
in which the more powerful
chains will gain market share.
Many independent hoteliers
will opt to sell or allow their
assets to be franchised or
managed by big brands.
historic buildings in main cities in the United Kingdom’s
Trends 2007
85
INDUSTRIAL
FRAMEWORK AND
MODERNIZATION
CARLOS
MAURITS KÜPPERS,
Industrial Department Director
CB Richard Ellis Barcelona
Over the last ten years it
has almost gone unnoticed
that Barcelona’s industrial
sector has been quietly
modernising itself.
The changes that have
happened over the last decade
have been dizzying and
exciting. Perhaps, it has gone
unnoticed because traditionally,
the key players of the real
estate market have been paying
attention to other sectors,
mainly office and residential.
Although in the background,
industrial real estate has not
stopped evolving, due to several
factors that warrant review, of
which I will address issues of
geographical restrictions, the
shortage of urban land, the
advantages and disadvantages
of buying versus leasing, the
arrival of new agents in the
market, the development of
roadway infrastructures and
public transportation, the
growth of cities and the rise
of emerging markets, or the
relocation of businesses.
Geography is the most
important determining factor
in the industrial real estate
THOUGH GEOGRAPHICALLY
PRIVILEGED, EXPANSION
WITHIN BARCELONA IS
CONSTRAINED
86 NATIONAL MARKET
Geographical mobility has become an
market. From a national
perspective, there are cities
with an immense capacity
for horizontal expansion, like
Madrid, and there are others
that exist in mature markets, but
whose capacity for expansion
is geographically restricted,
as is the case, most notably, in
Barcelona and Valencia.
Though geographically
privileged, expansion within
Barcelona is constrained. Both
the sea and the mountains
prevent the natural growth of
the city to the east and west.
Such intense lateral pressure
has resulted in the growth of
the city to the north and south,
stretching its perimeters beyond
the conventional.
MOVING FURTHER
Previously, in the last eight
to ten years, most businesses
preferred to situate themselves
in the vicinity of Barcelona,
while expansions and
relocations did not typically
exceed a 35 km radius, 45
at the most. Few businesses
considered the possibility of
moving further, or integrating
into nearby provinces.
Since then, the situation
has changed considerably.
Geographical mobility has
become an accepted mainstay
in business strategy. It is now
considered part of the natural
evolution, and the main
solution to the lack of available
urban land.
Acceptance of these geographical
changes has encouraged the
development of new industrial
zones. In Barcelona, the
province of Tarragona has been
the main beneficiary of this
expansion. The road networks,
the extension of the port, and
the price of land have been
key factors in its accelerated
development.
accepted mainstay in business strategy
However, precise analysis is
essential because although
the relocation of industrial
areas away from metropolitan
Barcelona is primarily triggered
by the city’s geographical
character and the new business
mentality, it is also significantly
influenced by other factors,
among them, price, which is
crucial. It is vital to remember
this factor when examining the
reasons for business decisions.
It isn’t the only motive, but it is
one of the most important.
HIGH PRICES
One need only review the recent
history of Barcelona’s industrial
real estate market, and the
upward spiral of its prices,
to see that cost is a factor of
maximum importance. In only
the last five years, industrial real
estate assets have experienced
an adjusted average increase
in value of around 35 percent.
There are not too many sectors
with such dramatic increases in
such a short period of time. The
affect is palpable: urban land in
the city has become one of the
most expensive in Europe. As
a result of the high costs, many
companies have encountered
serious difficulties initiating,
expanding, or relocating their
operations in the metropolitan
Barcelona area.
Under such conditions,
speculation has become a
serious problem, one without
a simple solution. We must
consider the big picture. Does
it make sense for industrial
real estate in Barcelona to
be more expensive than that
of other European cities like
Paris, Madrid, or Berlin? The
governing authorities hold the
key to alleviating the situation.
A rational solution is needed, a
coherent urban plan, sensitive to
social needs, that impedes any
speculative interest
from the start.
Trends 2007
87
CARLOS
MAURITS KÜPPERS,
INDUSTRIAL FRAMEWORK
AND MODERNIZATION
It is essential that the public
administration recognises the
delicacy of the situation and
devises suitable alternatives.
Responsible urban planning
that prioritises general interest
is needed. Too often, the
standard urban model is
overly fragmented, partial, and
capricious. Given the elevated
costs, it doesn’t seem logical,
for example, to penalise plots
with a maximum occupancy of
less than 60 percent, nor that
practically none of the plans
promote flexibility.
The town-planning parameters
are not in accordance with the
actual needs of the market, quite
the contrary, in many cases.
There is no possible doubt
that land shortage is a chronic
malady in our profession. As
long as there remains a scarcity
of available land, it will be
difficult to control the rise
in prices, and – as a result
– speculation, which will
inexorably lead to an unsatisfied
demand and, in the long run,
displaced businesses. If the
sector is to flourish and rid itself
of the speculative phenomenon,
the raw material is vital.
INFRASTRUCTURES AND
THE FUTURE
Other key factors in the
evolution of the sector include
roadway infrastructures.
Here, we face a matter of dire
importance. There have been
significant improvements
in the past few years that
have undoubtedly favoured
the geographic expansion of
industrial estates, although the
global level of infrastructure
development continues to be
insufficient to absorb real needs.
There is a disproportionate
relationship between roadway
infrastructures, prestige, and
the industrial consolidation
of Barcelona. There are
obvious deficiencies, and
the investments made in
the last few years have been
insufficient. Other Spanish
cities have managed more
effectively to capitalise on their
resources, and have given top
priority to the improvement of
their roadway infrastructures.
Madrid is a clear example
of a city that has grown
exceptionally in this regard.
It is important to stress that
the infrastructure problem is
intricately linked to the shortage
of public transportation. It is
inconceivable to verify what
portion of industrial estates lack
public transportation, especially
when taking into account their
critical mass. This impediment
compounds the aforementioned
shortage of roadway
infrastructures. It would be
advisable for the government
to bear this in mind if we are to
minimise the collateral effects of
the predicament.
TO BUY OR LEASE
The decision to buy or lease is
another relevant aspect in the
88 NATIONAL MARKET
current state of affairs. We must
bear in mind that leasing with
an option to buy is offered only
very rarely in the industrial
real estate market; accounting
for barely one percent of total
property transactions.
Additionally, the choice to buy
rather than lease has remained
dominant in the last few
years. Firstly, the procurement
of property seems to be an
intrinsic element of the Latin
character. The consensus
believes that buying is better
than renting, perhaps because,
psychologically, we have been
taught that the acquisition of
property augments security,
the possibility of capital gains,
and prestige, while renting
denotes a deficient degree of
social acceptance, a supposition
that does not extend to other
cultures.
That general trend shows
some variations when applied
to the industrial real estate
market. Conventions persist,
but in business decisions,
other parameters intervene.
The decision to buy continues
to be the preferred choice
among small- to medium-sized
companies, especially those
family-owned businesses
that regard real estate as an
economic guarantee for the
future and an increasingly
profitable investment in
the medium/long term. In
this segment of the business
population, professional and
personal motives play equal
parts in the decision to buy and
sell, though in actual fact, the
It is important to stress that the infrastructure problem
IN ONLY THE LAST FIVE
YEARS, INDUSTRIAL REAL
ESTATE ASSETS HAVE
EXPERIENCED AN ADJUSTED
AVERAGE INCREASE IN VALUE
OF AROUND 35 PERCENT
esteem of private ownership is
usually a deciding factor when
choosing to buy rather than rent.
Inversely, businesses that elect
to lease prefer to focus on the
core business and flexibility
rather than on personal wealth.
Often, they are businesses that
choose to prioritise investment
in their own activities (be
it machinery, research and
development, or staff training)
in order to maximize returns.
One of the competitive
advantages of leasing is
flexibility. Multinational
corporations and logistics
companies constitute a large
part of the renting segment.
Another significant reason
sales are preferable to rentals
has been the extraordinarily
robust economy of the past
few years. Low interest rates
have had a kindling affect on
purchases. Bank financing has
been extremely flexible and
very receptive in facilitating
these transactions. Fiduciary
differences between owning and
leasing had been minimal until
just a few months ago. For this
reason, companies with a choice
of owning or leasing have opted
increasingly for ownership.
Nevertheless, the economic
boom has ended, due to the
credit crisis in the United States
and its subsequent effects on
Europe. Accordingly, the actual
financial conditions and the
receptiveness of banks are
presently diametrically opposed
to the circumstances of the last
few months. The situation has
had an immediate effect on our
profession with an alarming
slow-down in real estate
activity. The residential sector
has suffered the most with an
abrupt halt in sales rates.
In the industrial sector, the
consequences to date have been
less serious. In fact, companies
with financial muscle are the
ones that are most involved in
buying and selling transactions.
It is evident that deciding
factors differ notably from five
or six years ago.
Previously, the general market
trend favoured rapid response,
as seen by the speed in which
transactions were completed
and the common belief that any
delay in decision-making risked
the loss of preferred properties.
We have witnessed a certain
degree of collective frenzy
centred on buying and selling,
as seen by the high percentage
of sales finalised before the start
of construction.
The current situation is
diametrically dissimilar.
Attempting to bypass any
unnecessary risk, decisions tend
to be prolonged, while all the
variables are conscientiously
is intrinsically linked to the shortage of public transportation
analysed. The main
consequence of these delays has
been the role reversal of buyer
and seller, that is to say, the
buyer or lessee now maintains
a position of advantage over the
developer or owner, resulting in
greater equilibrium in sales and
leases. The short-term forecast
predicts that leasing will
become the dominant tendency.
TYPES OF CONSTRUCTION
Another interesting aspect
of the industrial real estate
sector is the recent evolution
in building characteristics.
Not too long ago, the standard
construction model was limited
to a warehouse including a
ground floor with a mezzanine
level, which was typically 15
to 20 percent of the lower level
surface area.
From this concept, the market
has evolved towards much more
Trends 2007
89
CARLOS
MAURITS KÜPPERS,
INDUSTRIAL FRAMEWORK
AND MODERNIZATION
aggressive construction models
that, in some cases, seem to
defy industrial logic. Most new
constructions include a ground
floor, a first floor identical in
surface area to the ground floor,
a second floor, and basement or
semi-basement.
This evolution in construction
is attributed to the price
increase of urban land,
again, the raw material. This
fact encourages developers
purchasing these properties to
consider themselves obligated,
in the best of cases, to take full
advantage of urban-planning
allowances, and in the worst of
cases, impelled to stretch said
allowances in order to obtain
favourable profit margins.
The main consequence of this
absurdity is the change from
a situation where developers
build above and beyond actual
needs, to a situation where
clients, being buyers or lessors,
must adapt to supply, although
these properties are far from
optimal or operative.
Another interesting factor
is the change in function of
the conventional industrial
building. Originally, strictly
speaking, warehouses were
industrial properties. That
is to say, they were used to
house production facilities, or
accommodate various elements
in the chain of production.
Recently, these properties
have become, to a large extent,
corporate headquarters, where
businesses have integrated
storage warehouses and offices
(traditionally located in urban
90 NATIONAL MARKET
centres). This situation has
precipitated a rise in aesthetic
awareness, whereby more and
more, warehouses are fitted
to accommodate corporate
headquarters, and designed
accordingly, both internally and
externally. Industrial parks on
the whole are undergoing this
same evolution.
In the past, industrial areas
were an integral part of any
metropolis, at times even
located beside residential
areas. Demographic growth
in key cities has engulfed
these industrial areas into coexistence. The situation has
increased ostensibly, causing
those industrial areas located
within city limits to re-zone and
migrate to the new, modernised
industrial estates.
The industrial estates developed
in the 1960s and 1970s clearly
demonstrate the evolution of
our sector. Some good examples
of this include improvements in
the width of the roads, parking
facilities, interior height, the
availability of ancillary services,
and innovations in construction
materials.
INTERNATIONALISATION
AND RELOCATION
Perhaps the most noticeable
phenomenon in the industrial
sector over the last few years
has been the introduction of
multinational corporations and
the inverse, their relocation.
Many foreign multinationals
started to operate in Spain
at the start of the economic
boom. This trend generated a
high number of jobs, economic
prosperity, and a state of general
well-being.
Nevertheless, the situation has
varied gradually over the last
few years. The rise of emerging
markets has forced the Spanish
industrial sector to evolve
from primarily manufacturing
companies to those undertaking
a negligible degree of
manufacturing. Accordingly,
multinational manufacturers
that demand a large labour
force have precipitated what’s
been designated ‘industrial
relocation,’ with all the collateral
affects the name implies. This
phenomenon exists, it is part of
a natural evolution, and is more
prevalent every day, despite
some sectors’ persistence in
dismissing the evidence.
It is essential to study
and analyse the causes
and consequences of this
phenomenon. Undoubtedly,
it is the biggest problem the
Spanish industrial real estate
market has faced. It is worth
bearing in mind that many
of these foreign companies
The industrial market has enjoyed a great deal of success and
established themselves
successfully thanks to
favourable treatment from the
government, which received in
exchange, a list of commitments
that were never fulfilled.
Our market has ceased to be
competitive with those of other
countries, although it remains
strategically positioned for some
businesses and sectors. The
situation has forced Spanish
development companies
to explore foreign markets,
mainly those countries recently
incorporated into the European
Union, predominantly in
Eastern Europe.
After an initial reluctance to
go abroad, fundamentally due
to a fear of the unknown and
the apparent uncertainty of the
markets, the risk has paid off
substantially for those companies
who decided to undertake the
challenge of foreign investment.
The profit margins have been
exceptional, and the land
acquisition price has been a
major factor. The Spanish market
cannot compete on equal footing
with these emerging markets in
so far as the availability of land
and the pricing conditions are
notably inferior.
With regards to the experts
in the field, it is interesting
to compare the profile of the
developer who has historically
been immersed in the sector
and the developer who has
recently entered the sector. The
occupational concentration of
the former is decidedly centred
on the industrial sector. We can
emphasise the impact of both
locally and nationally focused
developers. The expertise they
have contributed to the market,
as well as to new specialists
in the field, is of incalculable
value. Thanks to their efforts,
their faith in the profession,
and their perseverance, they are
highly revered in our market.
Among them are developers
who have entered the sector
attracted by the remarkable
profit margins. Many, having
decided to diversify their
activities, bring with them a
wealth of knowledge in the
residential sector.
OTHER MARKETS
Finally, one needs to review
the main nationally important
industrial markets. Worthy
of mention are Madrid and
Barcelona, which are the
two dominant industrial
Spanish markets; primarily
Barcelona, whose metropolitan
area includes more than 235
industrial estates, making its
industrial framework one of
the most extensive in Europe.
Together with Madrid, they
represent two extremely mature
markets, as is reflected in the
proportion of availability, the
market prices, and the demand.
Consequently, several cities have
delegated themselves viable
alternative markets, Valencia and
Zaragoza for example.
exponential growth over the last few years
In short, the industrial market
has enjoyed much success and
exponential growth over the last
few years. Real estate is a cyclical
sector, currently facing a pivotal
change from the last few years.
In the short term, it is predicted
that the instability created by
the credit crisis and sub prime
lending rates will continue
to affect the industrial sector,
though to a lesser degree than the
residential sector. The predictions
of the International Monetary
Fund are not overly optimistic
for the Spanish economy in the
short/medium term.
The indicators seem to pinpoint
a definite economic slowdown, replete with challenges
and uncertainties that must
be addressed with the utmost
composure and optimism, two
characteristics which are highly
important in the real estate
market in general, and even
more so in the industrial
sector.
THE DECISION TO BUY
CONTINUES TO BE THE
PREFERRED CHOICE AMONG
SMALL AND MEDIUM-SIZED
COMPANIES
Trends 2007
91
THE GOLDEN RULES
OF SELLING
HOMES
The new residential phase that has
just begun will bring many changes.
In order to revitalise the market, it is
imperative that these changes occur
sooner rather than later.
YOLANDA LOZANO,
National Residential Director
92 NATIONAL MARKET
It is difficult to quantify what’s
happened in the sector over
recent years. In hindsight,
we can all agree that it is not
possible to sell everything at
any given price.
This anomaly generates
others. Almost all markets
put real emphasis on
research, development, and
quality. Although that hasn’t
always been the case in the
management of residential
projects. In recent years, crucial
elements such as analysis,
planning, supervision and
execution of construction,
design, marketing, aesthetics,
and quality have been
neglected.
In any market, each product
has a certain position amongst
all of the other products,
and this position determines
its price. In the residential
market, this benchmark has
been omitted, and many cities
have maximised prices to the
upper limits that buyers were
capable of paying, without
proportionately considering
quality.
In lieu of quality, the price
of land is now paramount,
escalating to levels that make
it impossible to maintain its
In recent years, crucial elements such as
previous inertia in the market.
Unjustified cost increases on
the raw materials (the land) are
deferred to the final price of the
product in efforts to maintain
margins and with little regard
for the finished quality of the
home.
Profound reflection is
fundamental now that
the market appears to be
slowing down. From now
on, the aforementioned
qualitative elements (analysis,
planning, etc.) will be of
greater importance, and any
inefficiency in these areas will
be penalised by buyers.
ANALYSIS AND QUALITY
Complying with basic
commercialisation rules will
be essential for various agents.
These will include, firstly,
comprehensive analysis of all
data relating to existing supply
and scheduled development,
including demand preferences,
before undertaking any project.
This research will be more
time-consuming, but must be
more thorough than in the past.
Project feasibility studies need
MANY CITIES HAVE MAXIMISED PRICES
TO THE UPPER LIMITS THAT BUYERS WERE
CAPABLE OF PAYING
to improve as well, rather than
relying on estimations of future
price increases. This formula
has generated deceptive
situations, wherein a good
part of the estimated future
profit is absorbed by the cost of
purchasing the land, resulting
in higher prices.
Quality, in the broadest sense
of the word, should be the
benchmark of any sustainable
real estate project. Quality
applied from the architectural
scheme to the selection of the
best construction materials
and final features; quality
focusing on exterior aesthetics
of buildings and interior
aesthetics of homes, quality in
the supervision of construction
to ensure the completion of
deadlines and to guarantee
a standard of work where,
once delivered, defects and
imperfections are the exception,
not the rule.
analysis, planning, supervision and execution
PLANNING AND
MARKETING
One need only look at
development in other countries,
like Poland for example, to
see that the aesthetics of new
construction surpass ours. We
should take note. It is not only
low-density that motivates
planning in peripheral
zones, but also the exquisite
Trends 2007
93
THE GOLDEN RULES
OF SELLING
HOMES
YOLANDA LOZANO,
National Residential Director
KEYS TO THE FUTURE OF THE HOME
CURRENT SITUATION OF RESIDENTIAL SLOWDOWN
1
Stabilisation of prices and adjustment of production.
2
Adapt supply to decreasing demand.
3
Average increase of six months in the time needed to sell homes.
4
Sizeable reduction in demand for investment in general.
5
More effort in purchasing due to increased interest rates and current restrictive
financial conditions.
6
Discrepancy between price and homeowners’ ability to pay.
POSITIVE ELEMENTS OF THE NEW MARKET SITUATION
1
2
Demand for immigrant housing persists, indirectly feeding the repositioning
demand.
Repositioning demand replaces the demand for investment, which could
reactivate in times of adjustment.
3
Fiscal stability and European standardisation will lessen effects.
4
Existing supply will readjust to actual demand.
5
6
Socio-cultural factors outweigh demographics in the creation of
new homes.
Development companies are updating their supply and are receptive to
recommendations.
architecture, the quality of
construction materials, and the
advances in communal areas.
Furthermore, in the majority
of cases, unsatisfactory
commercial strategy plans were
carried out. Until now, deadline
compliance was the most
important element in launching
a project. Being the first among
competitors to begin selling
and averting hefty finance
charges was prioritised, without
pursuing the product with the
same level of intensity.
At CB Richard Ellis, we tend
to formulate parallels with the
automotive sector, as it is a
fitting comparison. Seemingly,
they are two different fields
with two distinct products,
though there are similarities.
Of course, the major difference
between the two is the final
TEN MEASURES THAT SHOULD BE UNDERTAKEN
1
Freeze land prices.
2
Favour the rental market.
3
Promote collaboration between the public and private sectors.
4
Develop new formulas that allow market flexibility, like renting with the option
to buy.
5
Apply personalised segmentation and client retention formulas.
6
Improve the quality/price ratio.
7
Enhance: fittings and fixtures in homes, community resources,
and client services.
8
Promote quality.
9
Support financially flexible measures and marketing strategies.
10
94 NATIONAL MARKET
Adapt to the new demand profile.
Comercial strategy planification
price of each product. It is
surprising, therefore, that
the proportional investment
in resources dedicated to
establishing commercial
and marketing strategies for
automobiles is much greater
than it is for homes.
CONVINCING BUYERS
Maybe this list of priorities
is too obvious. Regardless,
what is certain is that on
many occasions we have acted
with insufficient diligence,
trusting that “everything would
sell,” with neither enough
consideration for the future of
the market, nor the long term.
Circumstances have changed.
All of these factors will need to
be taken into account in order
to improve the quality/price
ratio, which truly convinces
buyers, because buyers have
learned their lesson. We must
regain public trust. It is the
only way to assure stability and
sustainability in the
residential market.
In Anglo-Saxon countries, it
is unthinkable to undertake
real estate projects without
expert assessment in order to
minimise misgivings, financial
liability, and risk. Before
embarking on any project, these
experts contribute the necessary
information concerning prices,
thereby facilitating the decision
to buy; they also provide
management and supervision
in the execution of projects,
establish, based on their
experience, the best definition
of an optimum product, and
is gaining prominence
the most effective commercial
strategy for each development,
supported by relevant,
innovative marketing. In short,
they create the most modern
homes with the most forwardthinking solutions.
Now is a time to reflect and
begin a new more stable and
sustainable phase, where
quality is the point of reference
in each step in the cycle of
residential development, from
conception and analysis to the
delivery of the finished product,
with the complete satisfaction
of the buyers.
At CB Richard Ellis we are
prepared to advise, support,
and collaborate as a team
with those willing to persist
throughout the process of
residential real estate project
management, with the
confidence of a job well done.
In order to satisfy, in each and
every one of the aforementioned
steps, the golden rules. A
difficult and challenging
objective.
IN THE MAJORITY OF CASES,
UNSATISFACTORY COMMERCIAL STRATEGY
PLANS WERE CARRIED OUT
Trends 2007
95
ZARAGOZA IN ITS
DEFINING YEAR
In 2008, the city of Zaragoza
faces its big international
debut after an accelerated
institutional and private
modernisation campaign.
The succession of events to begin
in the next few months will
unite Zaragoza with key national
and European cities. It will rise
to the top of the domestic real
estate charts and will ultimately
captivate international interest
with its many diverse projects.
Public investment in the project,
which has exceeded 1,600
million euros, is the largest in
the city’s history. For example, it
has created the AVE station, the
NICOLÁS
LLARI DE SANGENIS,
Director
CB Richard Ellis Zaragoza
96 NATIONAL MARKET
PLaZa development, as well as
the completion and development
of the third and fourth ring
roads, respectively.
Such tremendous effort would
not have come to fruition were
it not accompanied by strong
private enterprise, which has
enabled the development of
important office, retail, and
logistics projects – one of the
main ventures in the
Aragonese economy.
INTERNATIONAL EXPO
The 2008 International
Exposition in Zaragoza is an
excellent opportunity to present
the city on the international
stage. Nearly 100 countries will
be presenting and an estimated
seven million visitors will
experience the modern city
that is Zaragoza, a city that is
capable of attracting investor
interest and foreign developers,
who themselves will discover
that the city offers clear business
opportunities, above all in the
tertiary sector.
This event, which is a
culmination of efforts on the
part of autonomous and national
authorities, with additional
support from sponsors as well
The greatest emphasis,
as collective backing from the
local population, has already
succeeded in making Zaragoza a
more vibrant city.
From the very beginning it was
conceived as an opportunity for
urban improvement, not only
for the long-awaited integration
of the Ebro River (and the
recuperation of its banks) and for
the completion of the third ring
road, but also for anticipating
the potential uses of the Expo
grounds once events have
come to an end, whereupon the
international pavilion will be
converted into a business park,
which will create 165,000 m² of
office space.
The expo, which begins on 14th
July and lasts for three months,
is eagerly anticipated by all
spheres of society: business,
political, cultural and social, and
is certain to be an extraordinary
event for Zaragoza, for Aragon,
and for Spain.
STRONG TERTIARY
DEVELOPMENT
The residential growth over
the last six years, which has
outlined new development areas,
gave way to the tertiary sector
in 2007, which is progressively
in terms of investment
THE TERTIARY SECTOR IS
PROGRESSIVELY GAINING
INFLUENCE IN THE CITY AND
THE METROPOLITAN AREA
gaining influence in the city and
across the metropolitan area.
Prominent new retail projects
like Plaza Imperial, Puerto
Venecia, and Aragonia have
brought a total of 350,000
m² to the city, doubling the
existing area to date, and
simultaneously providing much
needed modernization. Current
interest on the part of national
and international firms is not
only concentrated on these
developments but also extends
to include local high street
retailers.
With regard to offices, the city
has seen the completion of its
first projects, among them, the
World Trade Centre, with 30,000
m² distributed among three
office towers. Upcoming projects
include the aforementioned
Expo Empresarial, Zaragoza
Alta Velocidad, as well as the
development of new corporate
headquarters and exclusive-use
buildings in PlaZa.
Over time, this fresh supply
will geographically reposition
Zaragoza’s financial district
from the city centre to the new
business area situated in the
urban west. Clients and investors
are already demanding features
that are not always available
in current office spaces; they
require the latest open-plan
exclusive-use buildings, with
modern fittings and facilities,
and underground parking.
The greatest emphasis, in
investment terms as well as in
the number of developments,
has been in the logistics sector.
In this area, the strength of
the autonomous community
has succeeded in creating four
logistics parks in Aragon, one
of which, Zaragoza’s PlaZa, is
domestically and internationally
significant. At 12 million m²,
it is tactically located within
the roadway network, tucked
between the new railroad freight
depot and the airport, which
allows distribution companies
strategic access to Spain and
southern Europe. Furthermore,
there is a growing supply of
retail and hotel amenities
in the vicinity.
BEYOND THE EXPO
In addition to the subsequent
economic impact that the Expo
will have on Zaragoza and
despite being the main event in
2008, the expo will leave a fully
functional high-speed train
from Madrid and Barcelona that
will allow the full integration
of these metropolitan areas
in terms of both business and
functionality.
Moreover, the Expo will create
an unprecedented increase in
public and private investment
in the region, which will
create the foundations for
Zaragoza to become a modern
and dynamic city that knows
how to capitalize on the
growing economic, labour, and
demographic trends which it is
immersed in, in order to become
a model 21st century city.
Trends 2007
97
If the energy efficiency of a building
was posed by its design, benefits of
reduced energy as weel as savings
in management would mean that
no additional expense is incurred
over the long term.
98
6
PIECES
Trends 2007
99
QUALITY IN
REAL ESTATE
ANALYSIS
JUAN V. ROMO,
Head of Department - CRM
100 PIECES
We say that something has quality
when we compare it to one similar in
kind. The concept may be subjective
and at the same time agreed upon
by many. Saying ‘this has quality’
implies superior value or worth.
The inverse would signify little or
no quality. According to ISO 9000
regulations, quality is assured once
its inherent requisites have been
satisfactorily fulfilled.
Real estate analysis depends
upon the valuation of many
elements, both tangible and
intangible: properties, projects
under development, market
cycles, trends. Analysis of
properties and projects can be
accomplished with technical
training and professional
expertise. The intangible
aspects, like trends, the need
or capacity of demand, the
convergence of prices or the
closing of deals, require skill,
observation, and professional
know-how.
To modern man, real estate
does more than temper a need
for shelter, it has become an
economic symbol, contributing
to the creation of wealth and
private equity. In order to satisfy
the demand for knowledge on
the subject, information has
become both accessible and
abundant. Additionally, the
number of professionals in the
field is growing exponentially,
as few people nowadays reach
There is no need to falsify or bypass information.
old age without carrying out a
real estate transaction in their
lifetime.
With an abundance of
information and a multitude of
experts in the field, one might
ask, why is it necessary to
analyse a process that is already
at the forefront of common
knowledge and an integral
practice of modern culture?
There are both simple and
complex issues in real estate.
Much of the existing data is
inaccurate or untrustworthy.
Often, the statistics lack
contributions from restricted
areas, where information is a
professional privilege. Despite
these impediments, when a real
estate opportunity arises, the
project must be studied correctly.
The analyst and his team must
pool their experience, gleaned
directly from field work in
various real estate sectors.
Because the market is cyclical,
researching its behaviour
requires a combination of
skills, including but not limited
to, technical training and
experience with the issues.
Findings, even if accurate, are
susceptible to human error.
Consequently, how can we
be certain, to give credit to
proposed conclusions, to follow
recommendations? Will we
instead maintain a position of
prudent scepticism?
The first step requires
the gathering of opinion,
commentary, listening to
presentations, and the reading
of published reports. Ask about
the presenter, his professional
profile, his career path, his
achievements. Study the way
he delivers his message, his
confidence, his conviction, his
arguments.
There are two key concepts
in analysis: quality and
reliability. It is my belief that
reliability is an indispensable
antecedent to quality. There is
ample evidence of this. For the
purposes of this discourse, we
will distinguish between oral
and written exposition.
In the case of presentations
and verbal exchanges – if the
speaker is effective – it can
be difficult to detect the
level of quality. Typically,
These days, excess data is a liability
THERE ARE
TWO KEY CONCEPTS
TO ANALYSIS:
QUALITY AND
RELIABILITY
Trends 2007
101
QUALITY IN
REAL ESTATE
ANALYSIS
JUAN V. ROMO,
Head of Department - CRM
the material on display
will have been enhanced
by a team of specialists and
augmented by graphics. The
atmosphere is often relaxed
and informal and the audience
is generally ill-informed on
the subject being presented.
As a presenter, avoiding
nonsense and trivialities helps
to establish a rapport with the
public and there will be no
time to question the veracity
of what has been heard. I
have always been sceptical
of presenters whose sole
aim is to steer the audience
toward a predetermined
conclusion. I ask myself, is
there any concealed data? Is it
a fixed scheme, inflexible and
uncompromising? Opening the
floor to questions, enables the
communicator to add detail and
clarification, and to ascertain
varying points of view. In
persuading an audience, it
102 PIECES
is vital that the presenter not
only have experience with the
public, but, in addition, he
must convey an air of integrity
and prestige in order for his
ideas to be taken seriously.
Often, the pretence of integrity
and prestige can be feigned after
many years in the profession.
With regards to written
material, it is easier to classify
the level of quality and
distinguish the good from the
average or unsatisfactory. A
brief glance will determine if a
report is easy to understand, if
it contains the appropriate data,
and if it reaches an interesting
and imaginative conclusion.
Unarguably, contemporary
culture is governed by the ease
and speed at which information
is transmitted, but let us not
forget Jean François Revel’s
essay on useless knowledge:
There is no need to falsify or
bypass information. These
days, excess data is a liability;
an expression of pomposity,
and the growing proliferation
of plagiarism are utterly
counterproductive to good
market research.
Here are a few guidelines to
ensure the quality of your
analysis:
a) Clarity: develop your
argument in an orderly,
logical fashion. Use common
vocabulary.
b) Simplicity: discard
affectation, do not overuse
technical terminology, avoid
foreign parlance, acronyms,
platitudes and common
idioms. The goal is to be
concise.
c) Originality: Your point of
view should be personal and
authentic. Plagiarism is an
analyst’s biggest mistake. Be
sure to cite sources whenever
using borrowed data.
Plagiarism is an analyst’s biggest mistake.
d) Contrast of opinions:
acknowledging other
opinions can strengthen your
argument. Determine the
pros and cons.
e) Brevity: If a report is
too lengthy, verbose or
digressive, it is less likely
to be read. Remember, a
client’s time is golden. In
presentations, do not neglect
your audience. Allow
for questions and general
discussion.
f) Rationalisation of
interpretations: Do not use
eccentric reasoning. The
thesis must be believable.
Experience is not sufficient.
Opinions should be argued
convincingly.
g) Truthfulness: Without
inviting catastrophe,
it is imprudent to hide
uncomplimentary
data. Everything has an
explanation and solutions
can be suggested.
h) Wide focus: Be open to
the maximum amount of
possibilities; disregarding
options may compromise the
thoroughness of the analysis.
i) Humility: Recognition of
one’s achievements does not
justify arrogance.
j) Respect: The audience and
the client also have opinions.
Likewise, other analysts may
present reasonable, though
opposing, viewpoints.
Adherence to these guidelines
is recommended from the start
of a piece of work. We must
bear in mind what is expected
of us and why we are hired. It
is important to maintain an
independent perspective and
come to your own conclusions.
Persuasion follows naturally
through correct reasoning
supported by accurate data.
Real estate market research
teams have expanded in
companies within the sector,
acting as advisors and providing
valuable tools to their clients.
We must pay close attention to
these resources. They should
not be neglected in times of
recession, nor considered mere
mechanisms of support for
the departments that generate
income. If, at the beginning,
the technicians in charge of the
research are viewed as minor or
inconsequential, what measure
of confidence will we grant
their reports? Of course, their
statements will be politically
correct, in accordance with
company policy, that is to say,
endorsed by the highest levels
of staff.
It is essential to recognize
one point: market research
is serious and difficult work,
probably more complex than
the successful closure of a
real estate transaction. The
development of suitable
research requires a specific
skill set, and certain allowances
must be in place, trained
staff, room for professional
development, and incentive
rewards for effort. After many
years in the profession, I know
few people capable of precise,
exacting analysis. Granted,
there are many managers and
agents, knowledgeable in their
field and well-accustomed to
deadlines, but who lack the
complex vision of the analyst.
Quality, simplicity, truthfulness,
and conviction are ideal
attributes in any profession.
Above all, I consider honesty
to be the most commendable.
Perhaps, that is also what the
client values most.
MARKET RESEARCH IS SERIOUS
AND DIFFICULT WORK, PROBABLY
MORE DIFFICULT THAN CLOSING
A SUCCESSFUL REAL ESTATE
TRANSACTION
Be sure to cite sources whenever using borrowed data
Trends 2007
103
I LOVE
GREEN
Bio-climatic, eco-efficient and
sustainable buildings; the green
movement is revolutionising the
way we understand the workplace.
SANDRA LOPESINO,
Project Manager - Leed A.P
104 PIECES
Nowadays we hear a lot of talk
about the green, efficient and
sustainable option in the property
market, but how is the concept of
sustainability defined, and how is
it being applied in real estate?
Commissioned in 1987 by the
United Nations, the Brundtland
Report categorically defines
sustainability as “development
that meets the needs of the
present without compromising
the ability of future generations
to meet their own needs.” The
Brundtland Report is also known
as Our Common Future, a report
by the World Commission on
Environment and Development
(the Brundtland Commission).
Now it has become clear that
within the real estate market
these needs should be applied
to land, building materials and
energy consumption. Another
concept also gaining importance
is that of Corporate Social
Responsibility, or CSR. This
can be defined as transparent
business practice based on
ethical values and respect for
employees, communities and
the environment. This has
become a new business model
in the market since companies
and tenants are changing the
way in which they operate
Corporate Social Responsibility is based on ethical
in order to comply with their
own CSR policies. (This issue
is mentioned on page 58 of
the report by CB Richard Ellis
and CoreNet Global entitled
Corporate Real Estate 2010:
Sustainability and Corporate
Social Responsibility.)
One only has to count and
quantify the resources used by
a building over the course of its
useful life to justify the need to
develop a new real estate model
capable of satisfying the present
demands of tenants. Taking into
account that people spend 90%
of their lives in buildings built
by others, it should be easy to
see the importance in building
in such a way that the internal
environment is improved for
tenants as well as guaranteeing
the highest energy efficiency for
the building.
Just how much energy do
buildings consume? According
to the Consejo de Construcción
Verde de España [www.spaingbc.
org] (the Spanish Council for
Green Construction), 70% of
all electricity consumption and
12% of all water consumption is
owed to the built environment.
Furthermore, modern buildings
count for 30% of all greenhouse
gas emissions and 65% of waste
TENANTS
CONSTRUCTION FIRMS
“WE WANT TO OCCUPY
SUSTAINABLE BUILDINGS
BECAUSE WE BASE OUR
DECISIONS ON THE COST OF
THE BUILDING’S LIFE CYCLE”
“WE WILL BUILD SUSTAINABLE
BUILDINGS USING TECHNIQUES
AND SPECIFICATIONS WHICH
WILL BE PROFITABLE IN THE
LONG TERM”
INVESTORS
“TENANT DEMAND WILL ENABLE
US TO FINANCE SUSTAINABLE
BUILDINGS”
DEVELOPERS
“WE NEED TO DEVELOP
SUSTAINABLE BUILDINGS IN
ORDER TO SATISFY THE NEEDS
OF INVESTORS AND TENANTS”
IF ENERGY EFFICIENCY IS
TAKEN INTO ACCOUNT IN THE
CONCEPTUAL DESIGN PHASE OF
A PROJECT, THERE SHOULD BE
NO ADDITIONAL COST
tipped annually. The figures
are surprising considering
that common belief points to
industry and transport as the
largest emitters of carbon dioxide
(CO2). These statistics reinforce
the argument for incorporating
greener building practices into
the real estate market in order to
address the situation.
It is often thought that energy
efficient buildings and the
sustainable construction model
imply additional costs. This
preconception leads many
developers and investors to
reject such developments
and therefore holds back the
evolution of the market for
sustainable buildings. However,
the idea that sustainable
practices equal higher costs is
not necessarily true, because if
values and respect towards employees, communities and the environment
Trends 2007
105
I LOVE
GREEN
SANDRA LOPESINO,
C B Richard Ellis Spain
PROCEDURES TO
IMPROVE THE ENERGY
PERFORMANCE OF
BUILDINGS ARE ALSO
BEING APPLIED AT
AUTONOMOUS REGIONAL
AND MUNICIPAL LEVELS
energy efficiency is a key aim
of a project from the early stage
of its conceptual design, the
benefits of reduced energy and
water consumption and lower
carbon emissions, as well as
savings in management and
operating costs, mean that no
additional expense is incurred
over the long term.
Environmental impact of buildings
12%
W ATER USE
30%
G REENHO USE
G ASES
60%
W ASTE
70%
ELEC TRIC ITY
C O NSUMPTIO N
• THEY DEPLETE OUR NATURAL RESOURCES
• WE SPEND MORE THAN 90% OF OUR LIVES INSIDE THEM
• THEY CONTRIBUTE TO GLOBAL WARNING
106 PIECES
TIGHTER REGULATION
Environmental demands
are proving to be ever more
prominent, as Spanish and
European Union regulations
are driving commitment to the
environment and establishing
ever tighter rules. For example,
the European Parliament
Directive 2002/91/EC on energy
performance of buildings
called for improvements in
the new Código Técnico de la
Edificación nacional (Technical
Code of National Construction),
since reflected in the Royal
Decree 314/2006 as well as in
the adoption of a system for
energy efficiency certificates for
buildings.
In fact, the creation of a system
for energy efficiency certificates
was already set out in the
EC Directive, adopted into
the Spanish legal system via
the Royal Decree 47/2007 on
the 19th January, according to
which a basic system of energy
efficiency certification for newly
constructed buildings will be
passed. For existing buildings,
a similar regulatory system is
planned through a future Royal
Decree, expected to come into
force before 2009.
On the 31st October 2007 the
period for voluntary compliance
for new buildings expired. As
of that date, all new projects
have to comply with the terms
set out in the Royal Decree of
19th January when applying for
building licenses. All buildings
will receive an energy efficiency
label according to the Energy
Efficiency Class awarded, which
can vary from Class A for the
most energy efficient buildings,
to Class G for the least efficient.
In order to define the Spanish
scale of classification, a specific
study was carried out which
took into account, amongst
other factors, the type of
building planned and the local
climatology where the project in
question would be carried out.
There are two possible options
for determining the level of
energy efficiency of a building;
• A generalized performancebased process using a computer
programme called Calener.
• A simplified qualitative
process which indirectly
applies the calculation
Energy certification of buildings,
initial/definitive
More
A
A
B
C
D
E
F
Less
Building
Location/Climatic zone
Use of building
Annual energy consumption
(
KWh/year
KWh/m2)
kgCO2/year
Annual CO2 emissions
(
kgCO2/m2)
Energy consumption and carbon dioxide emissions
are obtained by the Calener program, under normal
conditions of operation and occupancy.
Actual energy consumption and carbon dioxide
emissions of a building depend on how it operates
and the efficiency of the building, as well as climate
conditions, among other factors.
The consultancy’s new offices in Madrid are
methodology for energy
efficiency classification
Procedures to improve the energy
performance of buildings and
reduce the property industry’s
impact on the environment are
also being applied at autonomous
regional and municipal
levels. Examples include; the
Reglamento de Instalaciones
Térmicas en los Edificios
(the Regulation of Thermal
Instalations in Buildings), the
Royal Decree 1,027/2007, based
on the EU Directive 2002/97/EC
and CTE (Technical Building
Code) Directive, the regulation
on Ordenanza Solar Térmica
de Barcelona (Barcelona Solar
Energy Ordinance) (1999) and
the Plan de Mejora Energética
de Barcelona (PMEB 2002)
(Barcelona Plan for Energy
Efficiency Improvement).
It should be noted that the
Asociación Española de
Normalización y Certificación
(AENOR) (Spanish Association
of Standardisation and
Certification) is also developing
regulatory documents on
these issues.
ENERGY AND
ENVIRONMENT
CB Richard Ellis has
incorporated these initiatives
into its corporate strategy in
response to the increasing
demand arising from clients and
employees for green buildings.
In March 2007 the company
announced its intention to
become a neutral carbon emitter
by 2010, or carbon neutral, and
to implement a global energy
efficiency plan amongst its
clients, for whom it manages
a total of 1.75 billion square
metres of property. To this end,
CB Richard Ellis has created
a Sustainability Services
department in the United States,
with Sally Wilson acting as
global director, and an Energy
and Environment department
run from London, which will
cover Europe, the Middle East
and Africa.
We understand that our clients
are looking for energy savings
and better environmental
performance. “We believe it
is time to commit ourselves
to improving our clients’
operational performance whilst
at the same time helping to
protect the environment”, says
Brett White, president and CEO
of CB Richard Ellis.
These efforts have already come
to fruition in certain projects.
in the process of obtaining a LEED certificate
Trends 2007
107
I LOVE
GREEN
SANDRA LOPESINO,
The new CB Richard Ellis offices
in Washington have received
the LEED (The Leadership in
Energy and Environmental
Design) Gold Certificate. The
consultancy’s new offices in
Madrid, on the 24th floor of the
Torre Picasso, are in the process
of obtaining the same award and
will be the first to do so in Spain.
These are but a few examples
of globally standardised and
unified schemes which can
perfect the assessment process of
sustainable buildings.
SUSTAINABLE
CONSTRUCTION
Environmental demands on the
market keep on increasing and
are driving the development of
new methods and standards of
construction, according to which
architects, developers and clients
can define sustainable projects
based on measurable criteria,
including amongst others;
• BREEAM (Building Research
Enterprise Environmental
Assessment Method), of the
BRE, in the United Kingdom.
• LEED (Leadership in Energy
and Environmental Design),
of the US Green Building
Council.
• Green Building Tools, of the
IISBE (International Initiative
LEED WAS CREATED TO
SERVE AS A STANDARD FOR
THE CONSTRUCTION OF
SUSTAINABLE BUILDINGS
108 PIECES
for the Sustainable Built
Environment).
• Green Globes Method, of the
BRE in the United Kingdom
and the RICS Foundation in
Canada.
The Building Research
Enterprise developed the
Building Research Enterprise
Environmental Assessment
Method, BREEAM, in the
United Kingdom. This is
a system that analyses the
performance of buildings in
areas as diverse as management,
energy use, internal
environment quality, pollution,
transport, land use, materials
and water consumption. It
is often used in the United
Kingdom for office buildings,
homes, schools, retail units and
industrial buildings.
In Spain the LEED system
(Leadership in Energy and
Environmental Design) has
been more commonly applied,
devised by the US Green
Building Council and supported
by its Spanish counterpart,
the Consejo de Construcción
Sostenible de España (the
Spanish Council for Green
Construction).
LEED was created to serve as a
standard for the construction
of sustainable buildings and
high energy and environmental
efficiency. It is based on 69
obtainable and quantifiable
credits relating to, amongst other
factors, sustainable locations,
water efficiency, energy
efficiency, material resource use,
internal environment quality and
design innovation. According
to the credits the building aims
for and achieves, it is awarded
a silver, gold or platinum
certificate.
LEED is a tool that allows
property owners to enjoy long
term benefits over the life
cycle of the building, as well
as better energy and economic
performance and the consequent
environmental well being
for tenants and the building.
It is available for numerous
types of project, including
new construction, interior
redesigns, and residential
and planning developments.
Furthermore, it allows a
definition of “sustainable
building” to be established by
creating a common standard of
measurement for the various
areas of construction. In this way
LEED promotes the integration
of new energy efficiency
technologies for all elements of
a building and recognises the
environmental leadership of the
companies that choose to apply
the system.
SUSTAINABLE
PERSPECTIVE
Just five years ago the concept
of sustainability in the real
estate market was considered
difficult to achieve and its
credibility questionable. Today
it is no longer considered in
this way. An inevitable change
in attitudes has taken place,
and there are now many more
scales and criteria used to
assess sustainability in real
estate rather than the simple
quality/cost relationship, such
Buildings provide an enormous potencial
What are sustainable buildings?
PLANNING THE
LAND PLOT
ER
WAT M E NT
E
NAG
EN
E FF E RGY
ICI E
NCY
MA
M US
AT E
ER O
IA F
LS
TY
LI IOR NT
UA E R M E
Q T
N
I N I RO
V
EN
as social responsibility, energy
consumption, the use of natural
resources and the well being of
tenants. In the next five years
the number of these criteria will
certainly increase.
The buildings in which we
live and work in our day-today lives provide an enormous
potential platform to reduce
energy consumption and carbon
dioxide emissions. Optimising
the performance of existing
buildings and maximizing that of
future ones is an integral part of
any strategic response to global
warming. As one of the world’s
largest managers of commercial
property, CB Richard Ellis
intends to globally promote and
drive these initiatives.
PRO PER PLANNING AND C O NSTRUC TIO N C AN IMPRO VE A BUILDING `S EFFIC IENC Y.
C O MPLIANC E W ITH SPEC IFIC STANDARDS W ILL REDUC E THE BUILDING ’S
NEG ATIVE IMPAC T O N ITS O C C UPANTS AND THE ENVIRO NMENT, AND SAVE MO NEY.
SUSTAINABLE BUILDING S DO NO T APPEAR SPO NTANEO USLY.
SUSTAINABLE BUILDING S REQ UIRE A PRO C ESS O F C O LLABO RATIO N BETW EEN
PRO PRIETO R, TENANTS, DEVELO PERS AND BUILDERS IN O RDER TO PRO DUC E
LASTING RESULTS.
C C VE PLANNING O PENS THE G ATE TO THIS PRO C ESS.
platform to reduce energy consumption
Trends 2007
109
2008. HOW WILL
YOU STRUCTURE
YOUR FINANCE?
Uncertainty in the face of a
possible crisis has engulfed
the sector, although market
fundamentals would seem to
indicate otherwise. However
it is looked at, the structure of
finance will be the key issue in
the real estate market over the
coming months.
FINANCE STRATEGIES
FOR AN UNCERTAIN
ENVIRONMENT
“How the market has changed!”
has become the common, even
inevitable and continuously
repeated phrase since the end
of last year, particularly in those
forums and informal meetings
frequented by bankers and
property people.
ALBERTO ÁLVARO,
National Corporate Finance Director
110 PIECES
In the space of just a few months
the market climate seems to
have changed abruptly. Before
the summer it seemed we
were on our way to breaking
new records. Activity in the
real estate sector, measured by
volume of investment, take up,
new project being started and
yield compression, seemed to be
reaching unprecedented levels.
But the summer came to an
end, and in came the autumn,
more marked then ever. The
post summer depression took
on different names; subprime,
credit crisis, liquidity crisis, but
whichever the term applied,
caution and a lack of trust have
replaced the enthusiasm and
drive of all agents in the sector.
Despite the market fundamentals
still showing undoubtedly
healthy signs, an end of cycle
mood has gripped many people.
Despite the fact that consumer
spending remains strong,
employment levels are up,
private sector profits are still at
historic highs, tourism is as ever
a key driver in the economy and
much more besides: caution is
set to stay.
It is beyond the author’s control
to predict whether 2008 will
see a great crisis in the property
In the space of just a few months the
market on the back of the
Spanish economy, or by “crying
wolf”, to say whether the wolf
will come and eat all of us or
just a few of the smaller/younger
ones. All I can do, with your
permission, is provide a brief
reflection and a piece of advice…
just in case.
Experts in these matters say that
it is in these times of crisis that
the greatest fortunes are made.
Those who can see the storm
coming and prepare themselves
for the less favourable times
ahead can capitalize on these
opportunities when the moment
finally comes, and emerge
stronger than before.
CASH IS KING
The sceptics say that it is always
too late to anticipate the troubles
ahead, except when it is too
soon. In any case, as “cash is
king” seems to be the revived
mantra for 2008, why don’t we
take a brief look at the way in
which our finance is structured?
Everybody is aware that the
property business relies heavily
THE SCEPTICS SAY THAT IT IS
ALWAYS TOO LATE TO ANTICIPATE
THE TROUBLES AHEAD, EXCEPT
WHEN IT IS TOO SOON
on capital. When the banks
become less willing to provide
finance, securitised or not, it is
time to diversify one’s sources of
funding. It would seem that those
who are capable of successfully
doing this will undoubtedly
come out the winners from this
period of uncertainty.
Under these market conditions,
“financial partners”, a sobriquet
in recent years for referring to
financial institutions will come
back into use, whilst the “real”
financial partners, i.e. those
who share financial risks and
returns of a particular project,
will play a more significant role
in the market. Be it under the
same terms as in the past with
a redemption pre-arrangement,
through preferential
shareholdings or even in
structures similar to subordinate
debt, those property companies
who know how to successfully
structure the necessary
finance for their projects will
undoubtedly turn up trumps at a
time when others may lose hand
after hand.
For financial investors active
in the real estate sector, the
growing distance between
the property market and
its traditional financiers is
generating significant investment
opportunities, both direct
and indirect. Either through
traditional investment vehicles
or those structured on an ad-hoc,
project specific basis, investors
will see a wealth of opportunities
to profit from rental income and
capital growth in the property
market.
Creating partnerships requires
one’s homework to be done well
market climate seems to have abruptly changed
in advance; prestige, reputation
and brand image cannot be
earned overnight, and although
hard to achieve they are only the
first step. A solid, well-founded
business plan harmonised with
current market conditions is
needed in order to create the
right marriage. Transparent
government policies providing
sufficient guarantees for the
parties involved and a clear exit
strategy are the key factors that
separate the fine line between
confidence and apathy when
it comes to getting potential
investors on board for project
partnerships.
Perhaps from January 2008
onwards, starting with a
clean slate, banks will inject a
certain dose of optimism into
the market, allowing the good
times to continue for another
year, with Loan to Value ratios
above 80% and spreads below
50 basis points…or perhaps
not. Nonetheless, these theories
should not cause too much
concern to those who have a
plan B, or rather those who
have a plan B and are capable of
carrying it out.
Trends 2007
111
TEN PRINCIPLES
OF THE NEW STATE
LAND USE LAW
On July 1ST, 2007, a new State Land
Use Law came into effect, 8/2007, from
28TH May, which has generated much
expectation and a certain degree of
uneasiness in the market.
CERTAIN LAND VALUATIONS
ELIMINATE URBANPLANNING PROSPECTS
ANA RODRÍGUEZ-AVIAL,
Consulting and Planning Head of Department
112 PIECES
The fragmentation of the
Spanish urban planning system,
which is in permanent power
struggles with various regulatory
bodies, creates a setting in
which the law’s purpose is
questioned, especially after
having been appealed before
the Constitutional Tribunals
of several Autonomous
Communities.
We must not forget that the
Autonomous Communities
are in charge of designing and
developing their own policies
with regard to urban-planning
affairs. The government only
has authority in some planning
matters, like the guarantee of
equality in the enforcement of
constitutional rights and duties
related to land, the establishment
of economic and environmental
foundations for its legal system
or to value and be responsible
for the Public Administration’s
capital resources.
The law suffers from a lack of
clarity provoked by efforts to
avoid unconstitutionality and
has therefore generated a degree
of mistrust due to its lack of
clarity. The interpretations
of many of its articles are
confusing. Consequently, we
must be aware of its practical
The law has generated a degree of mistrust
application, to the adaptation of
Autonomous Community laws to
the law, and to the government’s
responsibility of drafting a code
of conduct to clarify itself.
Included below are some of the
new measures affecting land
development:
1. It does not distinguish types
of land
The law only distinguishes two
types of land: rural and urban.
1.1. Rural land is:
1.1.1. Land with no prevision to
be turned to urban land (i.e. nonurbanisable).
1.1.2. Land consigned
for urbanisation until the
urbanisation works have
officially been sanctioned by
the Town Hall (i.e. sectorised
urbanisable land, nonsectorised urbanisable land, and
unconsolidated urban land, in
any phase of the development
process up until it becomes
urban land).
1.2. Urban land is:
1.2.1. Land legally and effectively
integrated, with a network of
conventional municipal public
services and facilities.
This distinction does not affect
classifications made by the
regarding their own land or
urban-planning laws:
Urban land - consolidated or not.
Non-Urbanisable land - protected
or not.
Urbanisable land - sectorised or
non-sectorised.
However, it must also be taken in
to consideration that these new
regulations do affect valuations.
2. Defines urban-planning
transformation processes
The law defines urban-planning
transformation processes in the
following way:
2.1. Urbanisation processes
2.1.1. Initial urbanisation. This
signifies the transformation of
rural land to urban land.
2.1.2. The refurbishment
or renovation of existing
urbanisations on land classified
as urban land.
2.2. Procedures for Public
Programmes
These last points, which are new,
will be analysed below.
3. Establishes a minimum
sustainability criteria for
municipalities
within the sector due to its lack of clarity
If a given development process
– whether on its own or linked
with procedures approved over
the last two years – involves a
population, municipal urban
land area, or territorial area
increase of greater than 20
percent, it will require enactment
by means of a General Plan
review (and no longer by specific
modification (modificación
punctual)).
This will put an end to those
common initiatives wherein large
developments far from urban
centres increase the population
of a given municipality. From
now on, these developments will
not be approved through specific
modification (modificación
punctual) of the General Plan;
rather, they will require a review
of the entire General Plan,
thereby initiating a longer and
more complicated process.
This new feature is in keeping
with Andalusian regulations
that limit urban growth to a
percentage of urban land and
a percentage of the current
population, as outlined in the
latest General Plans.
4. Inclusion of the urbanisation
agent
For the first time in State
legislation, the law concludes
with the owner’s exclusive
right to choose the private
urbanisation initiative,
introducing the role of the
urbanisation agent.
This right is already included
in practically all Autonomous
legislation. Remarkably however,
the Community of Madrid has
acted against this by suppressing
the role of the urbanisation agent
in its territorial area with the
Law of Urgent Measures (Ley
de medidas urgentes), from
July 2007. This suppression is
justified by a lack of efficacy and
an incongruity with citizens’
basic property rights.
5. Allocates a minimum of 30%
of residential buildable area for
affordable housing (vivienda
protegida).
Trends 2007
113
TEN PRINCIPLES OF
THE NEW STATE
LAND USE LAW
ANA RODRÍGUEZ-AVIAL,
Consulting and Planning Head of Department
Autonomous laws already
allocate a certain amount of
buildable area for affordable
housing. In reality, the new
law will only affect those
that have reserved a lesser
percentage, like Murcia; whereas,
communities like Madrid,
Castilla-La Mancha and the
Basque Country, who have
reserved a greater percentage,
will be unaffected.
Another important repercussion
of the law is the allocation of this
area for urbanisation procedures,
without distinguishing between
urban land and unconsolidated
urban land. The new measure
will affect certain communities,
such as Asturias and Madrid,
who have designated this area
exclusively for urban land.
Furthermore, the law presents a
somewhat ambiguous exception:
FOR THE FIRST TIME IN STATE
LEGISLATION, THE LAW CONCLUDES
WITH THE OWNER’S EXCLUSIVE
RIGHT TO CHOOSE THE PRIVATE
URBANISATION INITIATIVE
114 PIECES
“the Autonomous legislation
may also assign or permit an
exceptionally inferior allocation
for designated municipalities or
development processes, provided
there are initial urbanisation
processes that guarantee, through
their method of planning
development, the total amount
of the quota within its territorial
area and that the distribution of
locations respects the principle
of social cohesion”.
This exception is difficult to
interpret. It is unclear whether
the quota can be exceptionally
and completely reduced for
certain municipalities (i.e.:
tourist communities), or whether
the development processes refer
to land categories (for instance,
non-consolidated urban land,
thereby compensated by other
categories), or if they refer
to concrete processes when
the General Plan of the given
municipality compensates them,
respecting the social cohesion
principle.
We will need to pay attention to
the way in which each community
interprets this exception.
Furthermore, the legal requirement
for social housing is allocated at
30% of the residential buildable
area, not the total buildable
area, like in some Autonomous
Communities.
It is also worth mentioning the
transitory application system of
the new social housing percentage,
which has spawned multiple
interpretations. The reason being
is that it is unclear, with regards to
legal approval, at which point the
urban-planning process must be,
so that the new percentage does
not apply.
6. Public land programs
Public land programs are an
important new element. The law
states that in instances whereby
urban land increases in buildable
area, density, or is assigned a
new use (short of comprehensive
remodeling or refurbishment),
fulfillment of said increase will
require the implementation of
concession standards for public
programs.
The law predicts that these
concessions may be substituted
by other means of fulfilment
established by Autonomous
Community legislation, meaning
that in practice, it is likely they
may be substituted for a monetary
equivalent.
7. Increases land concessions to
5-15% of the general buildable
area, and a maximum of 20% in
exceptional cases.
Up until recently, all Autonomous
laws required a concession of 10%.
This concession applies to land
The Autonomous Communities are in charge
classified by Autonomous
legislation as Urban land,
consolidated urban land, and
unconsolidated urban land.
The newest element is the
concession for consolidated
urban land, which has been
designated “Public Programs.”
(Actuaciónes de dotación’)
The percentage of concessions
demanded will be proportionate
to the increase in the buildable
area it produces.
8. Limits urban-planning
agreements
The law states that, through an
agreement with the Town Hall,
no obligations or provisions can
command higher levies than
those established by law. Any
such clause would be invalid.
This prohibits the percentages of
concessions, the social housing
ratios, etc. from exceeding the
determined legal limits.
As a result, the law hinders
planning agreements as the
Autonomous Community of
Madrid did when enacting its
Law of Urgent Measures in July
2007.
9. Increases the number
of reports required for
development
During the urban-planning
process of new developments,
developers must provide
the administration with an
environmental sustainability
report that includes a map of
natural risks within the field, and
the city council must present an
economic sustainability report
outlining the impact on public
funds of said development
processes.
10. Regulates legal criteria for
valuing land, eliminating the
criteria for consideration of
urban-planning prospects.
It is this last aspect of the law
that has generated the most
controversy, although we must
clarify that the new regulations
regarding valuations only apply
in the following instances:
10.1. Appraisal of expropriation,
sale or obligatory replacement.
10.2. Verification of the shared
distribution of profit and liability
transactions in the absence of an
agreement between all parties
concerned.
10.3. Estimation of the
capital liability of the Public
Administration.
In other words, it should not
therefore affect free-market
valuations that will continue
to be considered according
to market value criteria.
Furthermore, the disposition of
the law in not valuing urbanplanning prospects may have
had a knock on effect on land
financing, and subsequently
on the general market, which
ends up having an affect on free
market valuations.
This article has demonstrated
the degree of complication that
the current urban-planning
legislation poses. Each area
of land development presents
unique peculiarities depending
upon its territorial range and
the phase of the urban-planning
process in which it finds itself.
The vast regulations (with
different procedures, terms, and
institutions in each Autonomous
Community), the many possible
interpretations, the ongoing
transformation of State and
Autonomous legislation
(generated by political turnover),
and the different potential
interpretations and discretion of
each municipality, all contribute
to a measure of justified unease
when undertaking projects.
Going forward, this will require
real estate professionals to be
well-advised from an urbanplanning point of view.
of designing and developing their own policies
Trends 2007
115
TAKING STOCK OF
THE AMERICA’S CUP
The world’s greatest sailing
regatta, held in Valencia in 2007,
has been more than positive for
the city and excellent for the real
estate sector.
VÍCTOR GREGORI,
Agency Director
CB Richard Ellis Valencia
116 PIECES
The 32nd America’s Cup was a
first-class sporting event that
provided significant economic
and social windfalls for the
capital of the Levante region
and further strengthened the
international image of the
Community of Valencia.
In the medium term, a global
event of this magnitude, similar
to a World Expo Fair or the
Olympic Games, will have
beneficial effects, such as the
promotion and the consolidation
of the city’s image; economic
and social investment, media
coverage and tourism, and
the initiation of strategic
infrastructure and public service
projects (like The Balcón del
Mar, the expansion of the port
and airport, the AVE high-speed
train, Central Park, etc.)
From the moment Valencia
was chosen to host the 32nd
America’s Cup, the city gained
prominence on the world map
as a first-class destination, both
from tourists who wanted to get
to know the region that would
host this unique event, and
from companies who, realising
Valencia was a modern city
with a good infrastructure
network, decided to begin
operating out of Valencia.
95.6% of tourists who attended the
Many key retailers have
prioritised Valencia in their
international expansion plans,
having been attracted by the
tourism generated from the City
of Arts and Sciences as well as
the regatta itself. Proposals to
move to Valencia come highly
endorsed by the city’s excellent
tourist sector results, which
continued to trend upwards in
2006 and 2007.
Valencia’s booming progress
makes the city stand out as the
nation’s sixth most popular
tourist destination. Estimated
tourist spending in the city
was established at over €1,000
million per annum over the past
two years, compared to €800
million in 2005. It is also worth
noting that a survey performed
by the Tourist Board, indicates
that 95.6% of tourists who
attended the America’s Cup
would like to revisit Valencia.
The number of visitors has
grown substantially, due in
the main to the enormous
increase in foreign tourism,
which accounts for a third of
all holidaymakers. Response to
this demand has resulted in an
upsurge in hotel supply and an
improvement in quality. The
largest growth has been among
the five-star establishments,
which now make up 17%
of the market.
It is also important to point
out that the city has received
significant support from
public and private initiatives,
which have helped convert
Valencia into a European city
of reference due to its excellent
infrastructure, its pleasant
climate, and its assorted tourist
attractions. This becomes
ever more evident when one
analyses visitors motives for
coming to Valencia, 50% of
them state leisure as their prime
incentive for visiting.
HOUSING AND RETAIL
The announcement on
November 26, 2003 that
Valencia would host the
32nd America’s Cup Regatta
coincided with a surge in
the community’s residential
sector. This, coupled with
the regeneration of the main
event area, succeeded in
LOCAL RETAIL HAS
LOST GROUND TO THE
BIG NATIONAL AND
INTERNATIONAL FIRMS
raising residential sales rates
and prices. Among others,
new developments in the
Grao, Nazaret and Patacona
neighbourhoods, have
stimulated increases. Moreover,
these new projects that are
under construction have
managed to regenerate areas of
the city that were previously
derelict.
It is also important to note that
when the regatta’s crews arrived
in Valencia with their families,
(often over 100 families per
team), they revitalised the
America’s Cup would like to revisit Valencia
city’s rental market. (This has
perhaps been the regatta’s
greatest contribution to
Valencia.) The areas nearest to
the port (Avenida del Puerto,
Francia and Baleares, Paseo de
la Alameda, etc.) housed large
numbers of competitors, and in
doing so virtually reduced the
vacancy rate in the area to zero,
which would have been highly
unlikely to have happened a
few years ago.
Although the event has been
positive for urban-planning
activities, it must be highlighted
Trends 2007
117
TAKING STOCK OF
THE AMERICA’S CUP
that there are various municipal
projects that were expected to
revitalise the main event area,
that are yet to be completed.
Examples include, among
others, the expansion of
the Avenida Blasco Ibánez
(extension of one of the main
sea-access roads) and the
Calatrava Project (four skyscrapers earmarked for offices
and housing in the City of Arts
and Sciences).
Undoubtedly, one of the sectors
that has benefited most from the
regatta is local retail, especially
High Street shopping districts.
The big luxury stores, attracted
by the influx of tourism and the
America’s Cup itself, decided
that Valencia, (along with
Madrid and Barcelona), would
be their target destination for
new operations in Spain. If
we look at the types of retail
layouts with regard to location,
they favour large domestic
and international companies,
rather than local retailers
that have clearly suffered the
consequences of this trend.
118 PIECES
VÍCTOR GREGORI,
Agency Director
CB Richard Ellis Valencia
The majority of these flagship
stores have opted for the
commercial front line, locating
themselves along the avenues
of Colon, Don Juan de Austria
and Jorge Juan, while some
of the more exclusive brands
have selected the Poeta
Querol-Maruqés de Dos Aguas
area. Sixty-four percent of
transactions on these streets
were dedicated to companies
that sell personal items, which
is the predominant commercial
activity.
As a result of the America’s
Cup port being built, the
surrounding area has been
regenerated to a high standard.
The construction of the
teams’ headquarters and the
introduction of various leisure
and restaurant establishments
have lent a decidedly
international feel to the area.
As the 33rd America’s Cup will
be celebrated here, it is more
than likely that the area will
continue to accommodate new
national and international
events, which will further
revitalise the area, rejuvenating
the district and enhancing its
image as the leisure focal point
of the city.
The future use of the teams’
current headquarters will
be determined by the public
administration at the end of
the next competition. They
are likely be converted into
tertiary properties, either retail
or offices.
LOGISTICS AND OFFICES
Another relevant aspect worth
mentioning is the improvement
of infrastructures and road
networks, which has helped
to draw in new national and
multinational businesses
from the logistics sector, and
expanded the areas occupied by
those who already maintain a
presence in the region.
The availability of land and
the creation of new industrial
estates are the foundations
for consolidating this
sector’s expansion within
the Community of Valencia.
Moreover, Valencia has become
one of the largest logistical
centres in Southern Europe,
capitalizing on its strategic
location in the east of the
peninsula, and its excellent port
and airport facilities.
During the regatta, the logistics
sector of Valencia was very
active. Many operators
relocated to new, better quality
logistics platforms, creating an
increase in take-up rates. As
in the office sector, numerous
developers opted to plan
logistics parks to let, increasing
rents to as much as 4.8 €/m²
The residential rental market has
TERTIARY DEVELOPMENT IS ON
THE RISE AND IT IS FORECAST
THAT BY 2009 THE NUMBER
OF OFFICES WILL HAVE
INCREASED BY 50%
per month in prime areas. This
rental trend will continue to
trend upwards, which will
allow developers to continue to
construct new logistics parks.
With regards to the office
market, the supply of new
landmark buildings is a
milestone for the city. Valencia
has evolved from having a
fairly obsolete stock of offices
to having state of the art
properties equipped with the
latest innovations. Without
a doubt, the America’s Cup
has been an incentive for
developers when planning
projects like these high-rise
properties, particularly in a
market like Valencia’s, where
the residential developer is
ordinarily more dominant.
Currently, tertiary development
is on the rise and it is predicted
that by 2009 the number of
offices will increase some
50%, from 525,000 m² to over
750,000 m².
As a result of the city’s
regeneration, particularly in
the office market, the take-up
rate has risen more than 40%
in 2006, from 50,000 m² to
over 70,000 m². The type of
area requested by clients also
continues to change.
If in 2006 spaces measuring 500
to 1,000+ m² accounted for 18%
of total demand, in 2007 this
had already increased to 25%.
As a result of all of the factors
indicated above, rents have
risen considerably, prime rent
is at €18/m² per month, which
is an increase of 20% on 2006’s
prime rent.
Due to this strong growth,
developers and investment
funds with a presence in other
markets like Madrid, Barcelona
or other European capitals are
now more inclined to view
Valencia as a viable alternative
where they can develop their
tertiary office projects.
In conclusion, the 32nd
America’s Cup has been
a tremendous success for
Valencia, it has marketed its
image worldwide and has
regenerated various important
sectors, such as tourism and
real estate.
And it doesn’t stop there.
Beginning in 2008, we will
enjoy eight seasons of Formula
One motor racing in Valencia,
followed by the 33rd America’s
Cup. And that’s just the start
of it.
benefited substantially from the America’s Cup
Trends 2007
119
PROJECT
REAL ESTATE
FINANCE
The recent volatility in the financial markets and
the subsequent drop in credit availability to finance
real estate transactions, coupled with the situation
in the residential market, has made the finance
directors of development and investment companies
rethink the way they finance their projects, both in
terms of obtaining levels of leverage comparable
to those to which they were accustomed before the
credit crunch, and in minimising the risk of each
transaction as much as possible.
JUAN CARLOS BUJEDA,
Debt & Equity Finance
Associate
120 PIECES
Project Finance presents an
opportunity for financial entities
to invest in specific projects in
the short term, while enabling
real estate developers and
investors to limit their exposure
to the equity provided, and
simultaneously advancing the
possibility of obtaining high
leverage levels and schemes
that allow them to undertake
complex projects.
Project Finance’s objective is to
finance projects whose yields
provide the sole guarantee
of the loan repayment. It is
an agreement between the
moneylender and the borrower,
to jointly confront the risks of a
given project, devising creative
solutions for its coverage and
management. The traditional
bank-company relationship is
substituted for the new bankproject relationship.
It is fundamental that every Project Finance plan
When presenting a financial
scheme to an entity, it is
imperative to put oneself in
their position and to have
therefore systematically
analysed the project’s
underlying potential risks.
These risks involve the market,
the construction, liquidity,
solvency, and the business.
Understanding the methods
employed by the financial
entity in the management and
coverage of each is the key
to Project Finance; we will
therefore outline them in detail.
MARKET RISK ANALYSIS
The first variable to be analysed
by any entity is market risk.
Every investment project
depends on tenant demand
to let a property’s vacancies.
Among others, variables to
be considered are the rate of
growth in office rentals (or
retail), the levels of availability,
the risk of over-supply, and
the capacity for takeover. This
analysis corresponds with
macroeconomic research of
the asset’s respective market,
therefore it is also essential
to study the labour market,
the current accounts, the
growth of the Gross Domestic
Product, and all the factors that
contribute to the productive
framework of the region.
CONSTRUCTION RISK
ANALYSIS
There is the risk that a project
may run over-budget or
exceed the deadline. Timely
completion is vital in order to
assure the availability of space
by the dates accorded in the
rental contract. (Moreover,
rapid construction minimises
possible exposure to other
types of risk.) A cost guarantee
from a reputable construction
company or a Construction
Management contract helps
significantly when negotiating
with financial entities.
PROJECT FINANCE’S OBJECTIVE IS TO
FINANCE PROJECTS WHOSE YIELDS
PROVIDE THE SOLE GUARANTEE OF THE
LOAN REPAYMENT
LIQUIDITY RISK ANALYSIS
It is fundamental that every
Project Finance plan includes
a well-defined strategy for
the divestment of debt. If it
involves financing a project
in development with an aim
toward selling the asset or
maintaining it as an investment,
cancellation of the loan
depends on the overall ratio
of debt, the valuation of the
property, and the availability
of financing in the market, in
order to replace the divested
debt. Fixed asset projects also
require a solvency risk analysis.
includes a well-defined strategy for the divestment of debt
SOLVENCY RISK ANALYSIS
Solvency risk analysis concerns
the capacity of a borrower to
repay the loan’s interest, as well
as its principal, within a period
agreed-upon by the entity and
the investor. In this instance,
it is vital to study the integrity
of the rental contracts, the ratio
of recoverable expenses, etc. A
given scheme’s projected cash
flow is the most fundamental
tool in any feasibility study.
Trends 2007
121
JUAN CARLOS BUJEDA,
PROJECT REAL ESTATE
FINANCE
BUSINESS RISK ANALYSIS
In real estate projects with a
high management component,
like hotels or shopping centres,
the business facet is extremely
important in predicting a
project’s future success. It
depends upon the management
of staff, a marketing plan and
other factors that cannot be
quantified a priori, like those
of the real estate sector (i.e.: the
status of office space supply
and demand). The mitigation
of business risk requires that
the real estate project rely on
directive skill to achieve certain
objectives, thus the investor’s
track record is a crucial factor.
Once the aforementioned risks
have been studied, the project
must be structured in a manner
wherein the profits obtained
by each investor coincide with
the respective risks assumed by
each. This is achieved by means
of contractual formulas wherein
risks are distributed between
the various parties, depending
on the respective degree of
control assumed over said
risk. That way, the business risk
of a hotel, for example, covers
the market risk by means of
Debt & Equity Finance
Associate
an independent management
contract, guaranteeing the
utmost professionalism in the
management of hotel functions.
Below, is a breakdown of
available tools for mitigating,
covering, or eliminating the
different risks of a real estate
project:
COVERING MARKET RISK
The focus when mitigating
market or rental risk is to
condition the disposal of debt to
the level of commercialisation,
reserving a portion of the total
debt (a leasing holdback) the
day the loan closes, in order
to incentivise the investor
to accelerate the project’s
commercialisation.
COVERING
CONSTRUCTION RISK
Construction is a consolidated
and mature process. The risk
of exceeding the budget is
mitigated by a construction
contract with an established
builder; this can be an
indispensable requisite to
financing. The bank views it as a
guarantee that the project will be
completed within a set budget.
COVERING LIQUIDITY RISK
The liquidity risk of debt is
mitigated by means of partial
and periodic amortisation of
the principal. However, certain
projects, due to their unique
structure, require negative
122 PIECES
amortisation, wherein the
principle appreciates as the
bank makes higher quantities
available, as in construction
loans, or loans designated to
finance changes of use, (for
example, converting offices
into residential space). In any
case, the entity will require that
the sum of the debt over the
value of the asset (also called
Loan to Value or LTV) does
not exceed a maximum limit,
which fluctuates between 60%
and 80%. In a construction
project, this is achieved by
requiring that the whole of an
investor’s capital is invested
on the day transactions close,
so as to reduce exposure of the
entity and maintain the desired
LTV. Other formulas also exist,
like the pari passu contribution
of funds between entity and
sponsor, wherein capital is
contributed jointly, period by
period, in accordance with the
ratios set out in the financial
contract.
COVERING SOLVENCY
Solvency, or the ability of a
developer to repay debt, is
guaranteed by means of a
thorough analysis of the asset
in question. The strength of the
rental agreements, the quality of
the tenants, and the underlying
economic factors of the market
for the letting and sale of units,
are essential when considering
a loan.
The business facet is extremely important
by means of rental contracts, or
a combination of both, with the
fixed and variable components
linked to the operational
returns of the asset.
In conclusion, Project Finance
is a process of identification
and mitigation of risk. It
requires designing and adapting
schemes for the financing of
projects, the detailed analyses
of which will reveal the optimal
plan to propose and establish
the most effective method of
allocating risk among those
willing to assume it, thereby
creating a more efficient and
economical capital venture.
SOLVENCY, OR THE ABILITY
OF A DEVELOPER TO REPAY DEBT,
IS GUARANTEED BY MEANS OF A
THOROUGH ANALYSIS OF THE
ASSET IN QUESTION
If the expiry of an important
part of the building’s rental
contracts is anticipated during
the life of the loan, thereby
leaving the building exposed to
market fluctuations, it would
typically create a rent reserve.
Establishing maximum LTV
levels and minimum DSCR
levels (see below) which will
mitigate this risk, but not
eliminate it, and it is in essence
an assumed risk for each
element of the project.
When determining the
possibility of funding a project,
the financial entity will supply
a cash flow assessment of the
property, with much more
conservative projections than
an equity investor might
produce, making Project
Finance a highly subjective
activity that again highlights
the apparent risks on the part of
the bank.
The risk of repaying interest
in the acquisition of a prime
asset with strong growth
potential, but with the standard
consequence of low initial
profitability, is mitigated by
another reserve, in this case the
interest reserve, which is also
deducted from the total initial
debt and released for loan
repayment once said increases
in the asset’s rents materialise.
in predicting a project´s future success
The objective, in any case,
is to secure a minimum
ratio between the cash flow
and the payment of interest
and principle (Debt Service
Coverage Ratio or DSCR).
COVERING BUSINESS
RISK
Typically, senior lenders are
not inclined to assume business
risk, and will stipulate in
many cases that management
operations are conceded to a
reputable independent operator
or a total separation of the two
Trends 2007
123
CB RICHARD ELLIS S.A.
INTERNATIONAL NETWORK OF OFFICES
MORE THAN 356 OFFICES IN 58 COUNTRIES
ARGENTINA
BELGIUM
CHILE
Buenos Aires
Brussels
Santiago de Chile
AUSTRALIA
Adelaide
Braddon
Brisbane
Cairns
Canberra
Chermside
Gold Coast (2)
Ipswich
Melbourne
Milton
Mulgrave
Parramatta
Perth
Sunshine Coast
Sydney (3)
Townsville
Tweed Heads
Underwood
AUSTRIA
Vienna
124
CHINA
BOSTWANNA
Gabarone
BRAZIL
Río de Janeiro
Sao Paulo (2)
Beijing
Chengdu
Guangzhou
Hong Kong
Shanghai (2)
CROATIA
BULGARIA
Zagreb
Sofía
CANADÁ
Calgary
Edmonton
Halifax
Kitchener
London
Montreal
Ottawa
Saint John
Toronto (5)
Vancouver
Windsor
Winnipeg
CZECH
REPUBLIC
Prague
DENMARK
Aarhus
Copenhagen
Kolding
FINLAND
Helsinki (Espoo)
FRANCE
INDIA
MOROCCO
SPAIN
VIETNAM
Aix en Provence
Angers
Annecy
Aubière
Avignon
Bordeaux
Caen
Chambery
Strasbourg
Grenoble
Le Havre
Le Mans-Laval
Lillie
Lyon
Marseille
Metz
Montlucon
Montpellier
Montreuil
Montrouge
Mulhouse
Nancy
Nantes
Neuilly-sur-Seine
Nice
Orleans
Paris (5)
Rennes
Roven
Saint Denis
Saint-Nazaire
Sophia AntÌpolis
Toulouse
Bangalore
Chennai
Hyderabad
Mumbai
New Delhi
Pune
Casablanca
Ho Chi Minh (2)
Ha Noi
Auckland
Christchurch
South Auckland
Barcelona
Madrid
Málaga
Marbella
Palma de Mallorca
Valencia
Zaragoza
NORWAY
SWEDEN
Oslo
Stockholm
Gothenburg
GERMANY
Berlin
Frankfurt
Hamburg
Munich
GREECE
Athens
Thessalonica
Jakarta
IRELAND
Dublín
Bulawayo
Harare
PANAMA
Panama City
SWITZERLAND
PERU
Geneva
Zurich
ISRAEL
Tel-Aviv
Lima
ITALY
Milan
Rome
Turin
TAIWAN
PHILIPPINES
JAPAN
Chiba
Fukuoka
Hiroshima
Ikoma
Kagoshima
Kanazawa
Kobe
Kyoto
Matsuyama
Nagoya
Niigata
Okayama
Omiya
Osaka
Sapporo
Sendai
Shinjuku
Shizuoka
Tachikawa
Takamatsu
Tokyo
Yokohama
KENYA
Nairobi
Seoul
Budapest
MEXICO
Mexico City
Monterrey
Queretaro
Taipei
Manila
THAILAND
POLAND
KOREA
HUNGARY
ZIMBABWE
INDONESIA
HOLLAND
Amsterdam
Hoofddorp
The Hague
NEW
ZEALAND
Cracow
Poznan
Warsaw
Bangkok (2)
Phuket
TURKEY
Istanbul
PORTUGAL
Lisbon
Porto
UGANDA
ROMANIA
Bucharest
UNITED ARAB
EMIRATES
RUSSIA
Abu Dhabi
Dubai (2)
Kampala
Moscow
SINGAPORE
Singapore
SLOVAKIA
Bratislava
SOUTH
AFRICA
Bloemfontein
Cape Town
Durban (2)
Johannesburg (2)
Klerksdorp
Nelspruit
Polokwane
Port Elizabeth
Pretoria
UNITED
KINGDOM
Belfast
Birmingham
Bristol
Edinburgh
Glasgow
Jersey
Leeds
Liverpool
London (3)
Manchester
Southampton
UNITED
STATES
Offices (166)
VENEZUELA
Caracas
Trends 2007
125
This publication has been carefully prepared for the purpose of providing general information and no responsibility is assumed for any errors or omissions. The opinions and data included
herein refer to the month of December 2007 and are subject to change without prior notice. Any transaction that is made in the market should not be based solely or necessarily on the data
contained in this publication. Nor may they be published whether in whole or in part nor be cited as a source without prior written authorisation from CB Richard Ellis.
Design and production: BPMO Edigrup
www.cbre.es

REAL ESTATE REPORT 2007

Transcription

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