CBRE RESEARCH

2018 S PA I N
R E A L E S TAT E
MARKET
O U T LO O K
 EXECUTIVE SUMMARY
ECONOMY
Although Spanish economic growth in 2018
expects a moderation when compared to 2017,
Spain is still set to outpace the majority of its
European counterparts, with growth of 2.9%
expected compared to the 2.6% forecast for the
Eurozone.
Economic growth will allow the country’s
unemployment rate to continue to fall, whilst
exports, consumption and investment will
continue to underpin Spanish economic growth.
The ECB is set to toughen its accommodating
monetary policy stance, while Interest rates will
remain stable for the short term, but will trend
upwards in the long term. Insofar as inflation is
concerned, it will continue to grow in Spain, albeit
at a slower rate than in 2017.
FINANCING
At the start of 2018, financing for commercial real
estate remains much as it was at the start of 2017:
readily available for the best properties and limited
for those that are less than stabilized.
Financing criteria are generally conservative, and
Spanish banks continue to be the main source of
financing for the small and medium-sized
transactions that dominate the market.
© 2018 CBRE
4 INVESTMENT 8
In 2018, the Spanish real estate sector is due to
see another year of heightened activity. Low
interest rates, high liquidity and the potential that
the sector still offers continue to make it an
interesting alternative to other markets and/or
products. After playing a key buy-side role in
recent years, this year Socimis will begin to rotate
their assets and divest non-strategic assets.
Meanwhile, hotels, logistics, residential to let,
student halls of residence and other sectors are
starting to generate a great deal of investor
appetite.
OFFICES 16
12 The office sector continues on its road to
recovery. In 2017, take-up in Madrid exceeded
600,000 sqm, the best figure to be seen in a
decade, thanks to a number of transactions, some
of which involved the Public Sector. In Barcelona,
take-up remained at similar levels to the previous
year, in the region of 345,000 sqm. Rents continue
to climb, and this growth is gradually rippling
outwards, from the CBD to the best properties in
other submarkets. Following years of next to no
development, the first new office buildings are
beginning to come onto the market.
2 CBRE RESEARCH
 EXECUTIVE SUMMARY
RETAIL 22
2018 promises to be a bright year for retail,
although consumption and sales will grow at a
slower rate than in previous years. Retailers are
expected to tentatively implement their expansion
plans and the investment market is expected to
thrive.
RESIDENTIAL 30
The housing market is consolidating its recovery.
The key indicators paint a healthy picture, with
strong housing demand and figures returning to
pre-crisis levels.
As the housing market recovers and yields begin
to improve, we are now entering a new expansive
cycle driven by the main developers and
investments funds in the property market, as well
as the increasing presence of the Socimis in the
lettings market. These new players are proving
instrumental in further professionalising the
sector.
© 2018 CBRE
LOGISTICS 26
In 2018, activity is expected to remain on a par
with the levels seen in 2017. However, new
developments are gradually expected to get
underway and thus help the sector to overcome
one of the main challenges facing it; a lack of
available space. Also, a broader range of investors
are now interested in investing in the logistics
sector thanks to the rise in e-commerce.
HOTELS 34
The hotel sector is currently flourishing, as proven
by the record-breaking sum of over 82 million
tourists that visited Spain in 2017. Investment in
this sector also broke records in 2017, reaching
more than €3,700 million. The outlook for the
sector in 2018 is upbeat, although growth will be
slightly more moderate than in recent years.
SPECIALIST 38
MARKETS
These markets are an investor favourite, given the
healthy performance Spain’s macroeconomic
fundamentals and the sector’s potential given that
is currently underdeveloped in comparison to its
European counterparts.
3 CBRE RESEARCH
 ECONOMY

ROBUST GROWTH IN A THRIVING

MACROECONOMIC CLIMATE

INTERNATIONAL OUTLOOK The short-term improvement in growth and the fiscal margin
produced as a result of the ECB’s current monetary policy
In 2017, the global economy grew at its fastest rate since the will create the ideal conditions for achieving more balanced
recovery began back in 2013, an upturn that was seen across economic policies and more robust growth in the medium
many countries. This improvement was underpinned by term. The ECB’s monetary policy is expected to vary
various macroeconomic policy stimuli, which prompted depending on the need to support growth and financial
healthy job creation, a steady recovery of investment and an stability. The results of the Brexit negotiations will play a key
uptick in business activity. role in determining European economic confidence and
trade.
Global GDP is expected to grow by almost 3.2% in 2018,
although forecasts suggest that the US and the Eurozone
area will register slightly lower levels of 2.4% and 2.6%
respectively. European economic growth is expected to
outpace that of the US due to greater improvements in the
In 2018, Spain is expected to
European jobs market. More favourable migration policies outgrow its neighbouring
might help to counteract the negative effects of Europe’s
ageing economy and falling populations.
countries for a third consecutive
year
Across the Eurozone, the “recovering economies” such as
Spain and Ireland are expected to continue to outgrow the
rest of Europe over the next few years, albeit to a lesser
degree than last year.

GDP GROWTH BY COUNTRY

2017 Forecast 2018
Previsión 2018 Annualised2018-2022
Anualizado 2018-2022

Ireland
Irlanda
Spain
España
World
Mundo
Portugal
EuroZona
Euro Zone
UnitedUnidos
Estados States
Germany
Alemania
France
Francia
Italy
Italia
UK
Reino Unido
0.0%
0,00% 0.5%
0,50% 1.0%
1,00% 1.5%
1,50% 2.0%
2,00% 2.5%
2,50% 3.0%
3,00% 3.5%
3,50% 4.0%
4,00% 4.5%
4,50%
Source: CBRE Research.

© 2018 CBRE 4 CBRE RESEARCH

© 2017 CBRE, Inc. CBRE RESEARCH

5
 ECONOMY

ECONOMIC GROWTH IN SPAIN INTEREST RATES

In 2017 the Spanish economy grew by 3.1%, exceeding the 3% Just as in other European countries, the ECB’s expansive and
barrier for a third consecutive year and outperforming most of low interest rate policy has boosted private consumption and
its European counterparts. Spanish economic growth is investment in Spain. Moreover, it has allowed the country to
underpinned by more balanced foundations than it was prior obtain very low cost financing, which in turn has favoured
to the crisis, with internal and external demand now the economic growth. Looking ahead to 2018, accommodative
primary drivers. Household income has been bolstered by job monetary policy in the Eurozone will continue to strengthen
creation and this has in turn allowed consumer spending to economic growth. In fact, although the ECB will continue
rise. Business investment has continued to grow thanks to with its asset purchase programme in 2018, it will start to
increased confidence and wider profit margins. Residential reduce it given the improved economic outlook and the need
investment is also trending upwards, reflecting the improving to mitigate any risk of financial imbalances. Last October, the
jobs situation and the more favourable financing terms and ECB announced that it will gradually reduce its monthly asset
conditions for both households and non-financial purchase rate to approximately "30,000 million until the end
corporations. These improvements have helped to make Spain of September 2018, or even later if necessary. This very
more competitive on the world stage and underpin growth in gradual reduction in asset purchases will keep interest rates
exports, which considerably boosted GDP growth in 2017. Low low in the short term, meaning that the Eurozone is not
interest rates and modest price increases were also key to this expected to see any significant rate hikes until 2019. That
widespread growth. said, long-term interest rates could begin to creep up before
then, as is to be expected given the low inflation environment,
According to CBRE Research, Spanish GDP is forecast to grow where rates are currently below the 2% target. The anticipated
in the region of 2.9% in 2018 and will remain underpinned by change in cycle in the US between 2019 and 2020, combined
exports, consumption and investment, as was the case in with the forecast drop in interest rates required to kick-start
2017. Despite this easing in the rate of growth, which will also its economy, could cause the ECB to lower the interest rates it
slightly put the brakes on growth in domestic demand, Spain has been applying in Europe up until now.
will continue to be one of the countries to post the highest
growth in Europe in 2018.

10-YEAR BOND YIELD AND EMPLOYMENT IN SPAIN

Forecast Forecast
7 22 3

6
2
(%) bond yield (%)

21

5
1
Empleo (millones)

20
4
(millions)

0
3 19
year

Employment

-1
10 year bond10yield

2
18
-2
1

17
0 -3

(1) 16 -4
2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

Spanish
Bono Bond
Español Bono Alemán
German Bond Bono Americano
American Bond Employment
Variación (Var. Quarter)
Trimestral, Empleo Total Employment
Empleo Total
Source: CBRE Research
© 2018 CBRE 6 CBRE RESEARCH
 ECONOMY
INFLATION STABILITY
Inflation, as measured by the CPI, fell in mid-2017 across the
lion’s share of the main advanced economies, including
Spain, fuelled by lower energy prices. As a result, the Spanish
economy posted a 1.1% price increase at year-end, while
underlying inflation rose by 0.9%, despite the widespread
cyclical growth and the increased spending in advanced
economies. Inflation is expected to continue to rise in Spain
throughout 2018, albeit less sharply, mainly due to advances
in technology and increased competition both on the national
and international level, factors which are curbing growth in
the cost of goods (with the exception of energy and food).
More specifically, Spain’s inflation rate is forecast to grow by
1.2% in 2018.
CHALLENGES FOR THE SPANISH ECONOMY
Spain’s budgetary deficit fell to 3.1% of GDP in 2017, and is
forecast to drop down to 2.5% in 2018. To guarantee a
constant reduction in its high debt-to-GDP ratio, Spain must
meet its fiscal targets in the medium term. Despite more
favourable financing terms and conditions prompting greater
demand for bank financing, they still remain stringent, partly
due to the continued deleveraging of the private sector.
2017 proved a very positive year for job creation. Over the year,
more than 450,000 jobs were created, with the services sector
topping the table. The unemployment rate stood at 16.3% in
Q4 2017, leaving the annual rate at 17.2%, versus the 19.6%
registered in 2016. As for 2018, job creation is expected to
continue to climb, with the unemployment rate set to fall to
around 15.1% in 2018. That said, the unemployment rate
remains high among young people and among those that have
been out of work for a long time.
© 2018 CBRE
Improved employment terms and conditions, fewer part-time
contracts and greater productivity via more skilled human
capital are just some of the other challenges facing the Spanish
economy. There are a number of other issues that must be
addressed as swiftly as possible, such as the sustainability of
the pensions system against the backdrop of the ever-ageing
Spanish population.
IMPACT OF THE POLITICAL SITUATION
Underlying political tensions in Spain have not proved an
obstacle to the recovery of the Spanish economy. In 2017, the
Spanish economy extended the expansive cycle that got
underway at the end of 2013, outgrowing the main Eurozone
economies. At present, and according to available economic
data, all signs suggest that the economy as a whole is proving
more resistant to internal shocks than initially forecast.
In recent months, the situation in Catalonia has been the main
source of political uncertainty in Spain. However, so far it
seems to have had a very minimal impact on the Spanish
economy. In fact, the risk premium at the end of January was at
its lowest since 2010. Although activity did dip slightly in
Catalonia in Q4, in sectors such as tourism and the real estate
sector, data will have to continue to be monitored before any
conclusions regarding existing trends can be drawn.
The robust growth seen in the Spanish economy in recent years
will, for example, allow export volumes to continue rising
notably in 2018, in turn somewhat counterbalancing political
tensions in the short term. Although forming the government
in Catalonia will be no mean feat, and despite the other
underlying instabilities across Europe, it appears that the levels
of uncertainty will diminish and therefore reduce its impact on
the Spanish economy in 2018.
7 CBRE RESEARCH
 INVESTMENT

HEALTHY INVESTOR APPETITE

ACROSS ALL SECTORS
Investment in the Spanish real estate sector in 2017
remained as high as in previous years, bolstered by growth in
economic performance and market fundamentals.
Investment volume fell y-o-y from €14,000 million in 2016 to
€12,900 million in 2017. 2017 failed to produce any mega-
deals such Merlin’s acquisition of Metrovacesa in 2016 and
Testa in 2015. In fact without these two deals, the totals for
the two previous years would have stood in the region of
€10,000 million.
This said, even discounting the effect of Merlin’s deals on
investment volumes in 2015 and 2016, office investment still
lost market share to other sectors in 2017. Some factors
which help to explain this decline include the reduced
activity of Socimis in the office sector in 2017 compared to
previous years, the lack of product in the most sought-after
areas and the difficulty that investors are having in achieving
their desired yields. Meanwhile, interest in the retail sector
remained extremely high, with investment totalling over
€3,000 million, thanks to some large volume transactions.
We would also highlight the growing investor appetite in
other sectors, especially hotels, an area which is currently
thriving, and logistics. However, the lack of income-
producing product in both the residential and alternative
sectors (the “Others” category in the graph below, which
includes student halls of residence, senior housing, car
parks, hospitals, etc.) is proving a stumbling block to
attracting further investment.
Although excluded from our figures, we would also highlight
the extraordinary amount of land that has been bought and
sold in recent months, not just in the residential sector, but
in several other sectors. Such a quantity suggests that
development activity will continue to tick up this year.
Save any unexpected hurdles at the national and
international level, we believe that 2018 will be a highly active
year across the whole of Spain thanks to the solid economic
forecasts, favourable financing terms and conditions, the
advanced stage of the current cycle, the product slated to
come onto the market and the corporate transactions that
are underway. As a result, we therefore see 2018’s investment
levels reaching similar levels to those recorded in 2017.
With regards to activity in Catalonia, the ground lost since
October as a result of the uncertainty that has plagued both
buyers and sellers could well be regained if a political
agreement that provides economic, legal and social stability
is reached.
In 2018, we expect
investment volumes to reach
similar levels to 2017

INVESTMENT VOLUME – SPAIN

Millions (€)
Oficinas
Offices Retail Industrial
Logistics &yIndustrial
Logístico Hotel Residencial
Residential Other
Otros
16,000
16.000
14,000
14.000
12,000
12.000
10,000
10.000
8.000
8,000
6,000
6.000
4.000
2,000
2.000
0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: CBRE Research.

© 2018 CBRE 8 CBRE RESEARCH

© 2017 CBRE, Inc. 9 CBRE RESEARCH
 INVESTMENT

HEALTHY INVESTOR APPETITE IN A MARKET The lack of quality product is prompting international funds
DOMINATED BY INTERNATIONAL INVESTORS to turn to new developments, either acting alone or via joint
ventures with local developers. As the cycle has progressed,
In 2017, 63% of investment in the Spanish real estate market,
more opportunistic investors have turned their attention
or close to €8,000 million, came from foreign capital, up from
away from the retail sector and towards residential, where
38%, or €5,400 million in 2016. Socimis accounted for 13% of
they are currently actively buying and developing land.
the investment total, whilst national investors accounted for
24% of the total, in line with recent years. In 2018 the relatively new Socimis, heavily focused on value-
add product, will continue to further consolidate and roll out
US investors were the most active in 2017 (23% of total foreign
their business plans. In terms of the five Socimis that have
investment), followed by UK and French investors. The few
been trading on the Spanish Stock Exchange the longest, Lar
direct investment deals with Asian investors mainly involved
España and Hispania have now announced their plans to sell
the acquisition of logistics portfolios, including the Logicor
their non-strategic assets, whilst others may well begin to
portfolio purchased by CIC from Blackstone.
divest and cash in on assets that have achieved value uplift
once they have completed the minimum three years that they
Against a backdrop of high liquidity and low financing costs,
are required to remain on their books. All of the Socimis are
the main challenge facing increasingly specialist investors will
looking to reinforce their strategic position and expand, as
be finding the product that meets their investment strategy. In
demonstrated by Colonial’s takeover bid for 100% of Axiare.
2018, we anticipate appetite and activity remaining high across
all investor types, from pure core right through to
opportunistic players.

The greatest challenge for

investors in 2018 will be finding
a product that is aligned with
their strategy

© 2018 CBRE 10 CBRE RESEARCH

 INVESTMENT
YIELDS
Despite already being at all-time lows, high market
liquidity, the ECB’s ongoing lax monetary policy and the
drive for alternative investment opportunities squeezed
prime yields even further in 2017. They ended the year in
the region of 4.5% for shopping centres, 3.25% for high
street, 3.75% for o$ces and 5.85% for logistics.
Up until Q3 2017, prime yields in Madrid and Barcelona
were practically on a par with each other across all
sectors. However, as of October, political uncertainty put
upward pressure on the yields of some properties in
Catalonia (achievable yields, given that no deals that
would prove this have actually been completed).
Investors’ attitudes regarding Catalonia in Q4 were varied,
with some buyers pushing ahead and closing deals, and
others opting to put any decision-making on hold. On the
sell-side, some vendors also decided to take their product
o! the market in order to wait for more favourable
circumstances.
Although there are still concerns regarding how the
problem of forming a new government in Catalonia will
be resolved, the level of alert has now eased somewhat.
We will have to closely follow the market’s performance
to see whether the spike in yields was a direct result of the
initial shock, or whether they are in fact going to rise
further.
CHANGE AND OUTLOOK FOR PRIME YIELDS BY SECTOR VS. BONDS
Offices
Oficinas High-Street Logistics
Logístico
10%
8%
6%
4%
2%
0%
-2%
2007 2008 2009 2010 2011 2012
Source: CBRE Research.
© 2018 CBRE
Yields are unlikely to harden any further given their
current levels, meaning that investors remain focused on
increasing their returns via revenues. O$ces, especially in
Madrid, o!er attractive rental growth opportunities, both
in the CBD and further afield, and this is putting some
pressure on the yields of the best properties in
consolidated secondary areas.
In shopping centres, the focus is on improving
management, reducing lease incentives and renegotiating
lease agreements that were signed during the crisis. The
unstoppable e-commerce boom has sparked an investor
appetite in the logistics warehouse sector among
investors that had never previously paid any attention to
this sector.
Lastly, the growing investor interest in residential lettings
is also of particular note. This is a product that is set to
expand across Spain in the major cities and metropolitan
areas on the back of the sharply rising number of people
now opting to let homes, particularly in cities such as
Madrid and Barcelona where all-time record levels have
been reached.
Taking into account all of the above and considering that
interest rates in Europe are set to remain stable in 2018,
all signs suggest that the Spanish real estate sector will
continue to attract investment during the coming year.
The million dollar question is whether these investors
will be able to find the product that meets their criteria.
Shopping
Centros Centres
Comerciales German
Bono bond
alemán Spanish bond
Bono español
2013 2014 2015 2016 2017 2018 2019
11 CBRE RESEARCH
 FINANCING
CONTROLLED RISK
FINANCING MARKET
At the start of 2018, debt financing for commercial real
estate assets in Spain remains much as it was at the
beginning of 2017: abundant for the best properties and
limited for those that are less than stabilized.   best transactions.
Investors are certainly taking advantage. Although the
financing market in Spain is far from transparent, we
estimate that approximately 75% of transactions (by
volume) in 2017 used debt financing.   offer aggressive fixed rate loans, but require long term
Yet unlike the previous market peak in 2007, lending
criteria remain conservative overall. Even the most
opportunistic bridge lenders seek to ensure that their
loans are accretive (i.e. offer positive leverage) and they
are not willing to lend at any cost.  
Spanish banks, which remain the primary source of
financing for the small and mid-size transactions that
dominate the market, rarely stray beyond 55%-65% loan
to value. And their bases on a value per square meter
basis remain highly defensible. Further, they continue to
insist on healthy levels of annual amortization. Indeed,
early-cycle investors who have seen significant value
creation frequently complain that Spanish banks will not
allow them to “cash out” of their newly improved equity
positions.
© 2018 CBRE
European banks with a long presence in Spain continue
to comprise a highly attractive source of financing for
core transactions. They remain very competitive on
margin/spread and loan amortization. Having said that,
they are highly selective, limiting themselves to only the
 
Other international sources of capital continue to seek
loan transactions, but their specialized lending criteria
limit the number of deals they are able to realize. Some
lease contracts. Others offer higher leverage, but need
larger sized loans and seek margins that most borrowers
are not willing to pay.
FINANCING RESIDENTIAL LAND
Funds and international financial institutions have
identified land financing as one area in which Spanish
credit institutions offer little in the way of competition.
The penalty that the Bank of Spain’s regulation imposes
on domestic banks is opening up investment
opportunities among international financial funds. A
turning point in the market was reached in mid-2017,
when Neinor Homes was granted a €200 million
corporate loan to acquire land under management.
12 CBRE RESEARCH
© 2017 CBRE, Inc. CBRE RESEARCH

13
 CAPITAL MARKETS

In recent years, many of these funds have invested in the
market via joint ventures or direct stakes in share capital.
However as of H2 2017, they started to opt to directly finance
land investments without becoming involved in the
development of the land. These funds offer highly
competitive financing conditions (with LTVs as high as 90%),
and require relatively high repayment rates (of between 12%
and 15%) for loans and credit lines of less than 3 years.
We expect the land financing market to continue to expand
in 2018 due to a need to secure fresh capital in order to
acquire portfolios and land banks. The healthy state of the
new developers’ balance sheets, could open up a window of
opportunity for securing low-risk, large volume loans and
credit lines of over €100 million.
listed on the MAB, up 70% y-o-y, with the majority of these
being companies with a relatively low market cap and little
specialisation. It will therefore be difficult for investors to
pick a “winning horse” from so many companies, thus
limiting potential liquidity and activity in this market.
The market is already in the process of becoming more
consolidated and specialised in order to attract more capital
and raise its liquidity levels, as can be seen from the
transactions completed in recent months. The Vitrubio-
Consulnor merger on the MAB is a clear example of
companies looking to upsize, whilst Colonial’s Axiare
takeover bid is another example of a firm looking to both
strengthen its strategic positioning, but also to eventually
specialise in a specific market segment.

CAPITAL MARKETS
SOCIMIS
The number of Socimis, the Spanish equivalent of European
REITs, trading on the Alternative Stock Exchange (MAB) grew
exponentially in 2017. At year-end, there were 46 Socimis
2017 was a huge year for listed Socimis. All of the top five
Socimis (Merlin, Colonial, Axiare, Lar and Hispania) achieved
double-digit growth versus 2016, reaching a total market cap
of €12,800 million between them. Hispania’s positive
performance is particularly notable, registering a 40% hike,
largely thanks to its management transparency and to
fulfilling the commitments made to its investors.

VOLUME INVESTED BY REAL ESTATE SOCIMIS (€ MILLION)

(31/12/2017)

12,000
12.000

10,000
10.000

8,000
8.000

6,000
6.000

4,000
4.000

2,000
2.000

0
Merlin Properties Inmobiliaria Colonial Hispania Axia Real Estate Lar España

Fuente: Estados Financieros intermedios compañías del mercad continuo y CBRE

Source: Interim Financial Statements for companies listed on the Spanish stock exchange and CBRE

© 2018 CBRE 14 CBRE RESEARCH

 CAPITAL MARKETS
NEW PLAYERS ON THE SPANISH STOCK
EXCHANGE
The listing of Neinor and Aedas Homes on the stock
market in 2017 signalled the return of large housing
development companies to the stock market. The two
companies are quite similar, with their main
shareholders also having similar strategies (Lone Star
and Castlelake). Both of these listings confirmed
international institutional investor appetite in this
market segment.
© 2018 CBRE
In contrast, Metrovacesa’s proposed stock market
flotation in early 2018 differs greatly from the two
previous cases. With a significantly higher asset
volume than the previous two companies and a
considerable land bank under management, this
developer’s strategy has a far greater focus on the
medium to long term.
Capitalising on the sector’s momentum,
Metrovacesa serves as a good example of the
current interest to list on the stock exchange
among developers and construction companies
whose shareholders include banks, as it both
allows the developers to secure financing and the
banks to divest.
15 CBRE RESEARCH
 OFFICES

MARKET CONDITIONS FAVOUR

RENTAL GROWTH

SIGNIFICANT UPTICK IN TAKE-UP IN 2017’s take-up grew 29% y-o-y to 606,000 sqm, registering its
MADRID best result since 2007.

Take-up in 2017 was up y-o-y in both Madrid and WITH BARCELONA FOLLOWING HOT ON ITS
Barcelona. HEELS

In Madrid, the initial year forecasts for modest y-o-y
growth in take-up ended up falling short. Q4 take-up
in the Spanish capital was driven by the public sector,
which following 10 years of next to no activity, started
to let o$ce space once again. In total, the public
sector accounted for 20% of o$ce take-up in Madrid
in 2017. We should highlight that most of these
lettings were relocations from completely outdated
properties to more central locations.
Given the new phase of construction currently underway in
the Barcelona o$ce market, many tenants looking for large
o$ces found the space that was right for them via pre-lets.
The standout lettings included Amazon and WeWork, who
will occupy the Luxa Silver and Luxa Gold buildings in 22@.
Take-up totalled 344,000 sqm in 2017, up 4% y-o-y, and in
line with the initial year forecasts.

OFFICE TAKE-UP - EVOLUTION AND FORECASTS

Madrid Barcelona
700.000
700,000

600.000
600,000

500.000
500,000
sqm

400.000
400,000

300.000
300,000

200.000
200,000

100.000
100,000

0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: CBRE Research

© 2018 CBRE 16 CBRE RESEARCH

© 2017 CBRE, Inc. CBRE RESEARCH

17
 OFFICES
UPBEAT OUTLOOK FOR 2018
We expect the Madrid market to continue to perform well in
2018 and take-up to come in at close to 600,000 sqm. The
main drivers behind this performance are the favourable
economic forecasts and the employment growth being seen
in the sectors that require office space, which despite easing
somewhat versus the last three years, is still positive (+2.3%
according to Oxford Economics).
In Barcelona, the lack of large, quality office spaces remains
an issue, and as could be expected the development of new
office product is pushing up the amount of pre-lets. This
said, some companies looking for large office space have put
their expansion plans on hold, preferring to wait and see
how the political situation developed after the elections of 21
December. This political instability could have an impact on
the market and reduce the take-up figure compared to what
could be achieved under different circumstances. We
estimate that take-up in Barcelona will stand at close to
350,000 sqm by year-end, 13% lower than the 400,000 sqm
that we would estimate under normal conditions.
In 2016, 100% of new office
supply in Madrid comprised
refurbishments. More and
more new-builds came onto
the market throughout 2017,
now accounting for 60% of the
total under construction
© 2018 CBRE
NEW-BUILDS TAKE FRONT AND CENTRE
STAGE
.
New-build office construction came back with a bang in
2017. Since 2014, Madrid’s new office supply, especially in
the CBD, has mostly comprised refurbishment projects
which have helped to somewhat modernise a largely
outdated stock. In fact, 100% of the 170,000 sqm that came
onto the market in 2016 was refurbished space, whilst in
2017, 70% of the 238,000 sqm delivered corresponded to
refurbishments. Of the 255,000 sqm currently under
construction and due for completion between 2018 and
2019, 60% comprises new-builds, even though 65% of the
151,000 sqm due for completion in 2018 still corresponds to
refurbishments.
Socimis have played a major role in the office
refurbishments completed in recent years. They remain both
active in this segment and in the new-build segment, where
as well as Colonial and GMP, new names are starting to
appear. Players such as Iberdrola Inmobiliaria, Bouygues and
Torre Rioja, among others, are restarting speculative projects
that were shelved during the crisis. Out of the 255,000 sqm
currently under construction or being refurbished, 50,000
sqm is pre-let, whilst the rest is available. In the medium
term, we would highlight Colonial’s investment
commitment to the Madrid office market, with its recent
acquisition of a large plot of land comprising over 100,000
buildable sqm in the Méndez Álvaro area, close to the city’s
Atocha train station.
Unlike the Madrid market, refurbishments have played a
more minor role in construction activity in Barcelona.
Barring a few exceptions outside of the city centre, the
properties with potential for refurbishment have undergone
a change of use due to high demand in other sectors. As a
result, construction activity has involved more new-build
development than anything else since the start of the current
cycle, and with 170,000 sqm set to come onto the market in
2018, this will be the highest amount of new stock delivered
since 2010. 22@ is a hive of activity, with strong demand
prompting developers to invest in new projects, many of
which have already been pre-let. This area is also seeing
many land sale and purchase deals for the development of
new projects, the standout project being the future Parc
Central, which will comprise more than 40,000 sqm of office
space, as well as other uses.
18 CBRE RESEARCH
 OFFICES

THE FLEXIBLE OFFICE

Whilst it is true that all companies are adapting to The rapid growth of the flexible
technological change at their own pace, it is also true that
they are all being affected by new ways of working and are
office sector can be attributed
wholly engaged in the battle to attract new talented to changes in technology and
professionals. Although tech firms lead the way in this area,
these trends are gradually spreading to other sectors and are
the economy, which have
high up on the list of priorities when it comes to companies altered the way in which
relocating headquarters.
occupiers behave. These
In a changing environment where technology is playing a key changes are transforming the
role, companies such as Regus, WeWork and Lexington have
set out ambitious expansion plans in Spain for the next few way in which companies define
years. We expect these plans to bolster office take-up in
Madrid and Barcelona, the cities where they started to
their property needs.
establish their networks last year. These types of companies,
flexible office and co-working space providers, have taken But one thing is for sure: the
large amounts of space across the main European capital
cities in recent months, letting more space than traditional
flexible office is here to stay.
sectors, such as finance and business services.

Office owners are also jumping on the bandwagon, with

players such as Merlin and Colonial now venturing into the
world of co-working and flexible offices via companies
already established in this field. In October last year,
Colonial acquired a stake in Utopic_US, a company that
currently lets a number of offices in Madrid and plans to
expand to Barcelona, whilst Merlin did the same with Loom
House. The aim is to offer flexibility and greater services to
their clients; modern properties that meet the most varied
needs, from entrepreneurs and freelancers through to start-
ups and large multinationals.

© 2018 CBRE 19 CBRE RESEARCH

© 2017 CBRE, Inc. CBRE RESEARCH

20
 OFFICES

RENTS CONTINUE TO CLIMB
The lack of large, quality spaces available in the most
sought-a#er areas continues to push rents up in the
best properties. In 2017, the prime rent climbed 10%
in Madrid and 8% in Barcelona, to end the year at
"31.00 per sqm/month and "23.50 per sqm/month
respectively. Both cities continue on the road to rental
recovery started in 2014.
In Madrid, any significant rental growth has been
confined to the CBD. Prime rent is due to end the year
at between "33.50 and "34.00 per sqm/month,
registering the greatest y-o-y growth in Europe.
Although to a lesser extent, rents are also set to rise in
other submarkets, including the Secondary Centre, A-1
and A-2, given that the vacancy rates in the more
modern properties that have been refurbished is
declining and putting upward pressure on the rents of
properties that still have available space. New-build
properties in these submarkets are expected be let
above current market rents.
The Barcelona o$ce market is further along the road to
recovery, with growth having already spread to all
submarkets. Looking ahead to the rest of 2018, the properties
currently under construction or being refurbished will not
provide the answer to the problem of the lack of available
space, given that many of these new spaces have already been
pre-let. Hence, rents will continue to be pushed up in
properties with the best specs, with levels expected to reach
as high as "24.75 per sqm/month in the CBD. Rents are also
forecast to rise across most submarkets, to varying degrees.
Prime rents in Madrid and
Barcelona are expected to see
some of the sharpest hikes in
Europe over the next few years
Madrid is expected to record the highest prime rent increase
in Europe in 2018, with Barcelona billed to see the fourth
highest rise. Looking to the longer term, both cities are two
of the cities set to record the highest annual growth rate
between now and 2022, with 6.0% forecast for Madrid, which
occupies the top spot and 3.0% for Barcelona which ranks
seventh.

PRIME OFFICE RENT - VARIATION AND FORECASTS

Madrid Barcelona
50

40
!/sqm/month

30

20

10

0
Fuente:2007
CBRE 2008 20092017.2010
Research, 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: CBRE Research

© 2018 CBRE 21 CBRE RESEARCH

 RETAIL

MODERATE GROWTH

SLOWDOWN IN SALES AND CONSUMPTION RETAILERS TO TENTATIVELY IMPLEMENT

GROWTH THEIR EXPANSION PLANS

For the third consecutive year, retail market indicators
were positive in 2017, even outstripping initial year
forecasts. According to the latest available data, private
consumption grew by 2.7%, retail sales were up by 1.6%, a
record-breaking 82 million international tourists visited
Spain, the unemployment rate fell from 19.6% to 17.2%
and shopping centre footfall and sales grew by 1.7% and
0.6% respectively to November (1).
The upbeat economy has encouraged many retailers to start
to expand, and activity is up across all retail-related sectors.
Many international retailers are looking to make their debut
in Spain. In 2017, almost 35 new retailers opened their first
store in Spain, including Uniqlo, OVS, Tesla and Vapiano.
However, most retailers are expanding tentatively, and only a
handful are aiming to open more than 15 new stores this
year.

Although the Consumer Confidence Index dropped by 8%
in September and October due the political instability in
Catalonia, it clawed back 3% in November and December,
returning to the high levels recorded during H1 2017.
In 2018 the main retail indicators are expected to remain
favourable, although growth will be more subdued. For
example, private consumption will grow by around 2.3% in
2018 and 1.9% in 2019, down on previous years.
Fashion retailers are being very cautious when it come to
implementing their expansion plans, partially due to limited
sales growth in 2017 (according to the CBRE index, fashion
sales in shopping centres fell by 0.6% up until November). As
a result, the expansion plans of most retailers are expected to
be rather unambitious in 2018, and marketing processes
look set to be far longer than in recent years. In light of
fashion retailers tentative expansion plans, rents are only
expected to creep up slightly this year.

(1)  Average figures for the shopping centre portfolio managed by CBRE (30 shopping centres totalling more than one million sqm GLA)
Other sources: INE, CIS, Oxford Economics.

CONSUMER CONFIDENCE INDEX

Oct vs. Aug Dec vs. Oct

120
115
+6%
110
105 -6%
contents

+3%
100
-8%
95 -1%
90 -11%
85
80
Ene 2017 Feb Mar Abr May Jun Jul Ago Sep Oct Nov Dic 2017

CONSUMER
Indicador CONFIDENCE
Confianza INDEX
Consumidor Current Situación
Indicador Situation Actual
Index Future Expectations
Indicador ExpectativasIndex
Futuras

Source: CIS. The Consumer Confidence Index is the average of the current situation and future expectations.
© 2018 CBRE 22 CBRE RESEARCH
© 2017 CBRE, Inc. CBRE RESEARCH

23
 RETAIL

However, business is thriving in other sectors, especially

sportswear, sports footwear, home, beauty and food &
beverage. These sectors are expected to lead the field in
terms of expansion in 2018, both in shopping centres and
on the high street. Furthermore, we believe that retailers
will start to broaden their horizons in 2018, no longer
focusing solely on the Madrid and Barcelona high street
markets, but instead starting to consider what
opportunities can be found on high streets in other cities.
We will begin to see an increased number of lettings in
cities with a consolidated stock, such as Bilbao, Malaga,
Seville, Valencia, Palma de Mallorca and Zaragoza.
Tourism acts as a major boost for high street sales, hence
why the top tourist destinations are the most sought-a#er
by retailers.
Click & Collect self-service point, Zara Marineda City – A Coruña
THE DIGITAL REVOLUTION IN RETAIL IS
SET TO MOVE UP A GEAR

In 2018, e-commerce will continue to gain traction as
smartphones allow people to connect to the internet
round-the-clock and shop anytime and anywhere.
Shoppers are distinguishing less and less between the on
and o%ine worlds, encouraging retailers to o!er an
omnichannel service that brings all of their sales channels
together as part of one global strategy. This is causing
physical stores to become more like showrooms where the
focus is on the shopping experience and customer
interaction.
As a result, we are seeing an increasing number of digital
devices in flagship stores, such as smart fitting rooms
based on augmented reality, and automated Click &
Collect systems that both encourage interaction between
retailers and customers and create a more personalised
shopping experience.
The sector is also innovating in terms of the other services
that complement the retail business, with improvements
expected in delivery options (drop-o! points, etc.), in
payment options (via internet or mobile devices) and in
logistics (faster delivery times).
The omnichannel approach is changing what retailers look
for in a retail unit, and establishments that do not meet the
new requirements will prove harder to fill. Also, given that
macro stores benefit from much larger catchments,
retailers such as Inditex are starting to re-evaluate their
store networks, and streamline them in order to focus more
on their core flagship stores.

Using technology to create omnichannel experiences will be key to

improving the overall shopping experience in the future

© 2018 CBRE 24 CBRE RESEARCH


RETAIL INVESTMENT WILL CONTINUE IN THE
SAME VEIN
Retail investment remained high in 2017, registering "3,300
million at year-end. Shopping centre investment accounted for
"2,500 million of this, whilst high street accounted for the
remaining "800 million. This figure was down 14% on 2016,
which was a record year in which the Metrovacesa retail
properties acquired by Merlin boosted the total volume
considerably. Although there were no corporate transactions,
2017 was an active year, thanks to favourable economic and
property cycles, high liquidity and improved access to
financing. In total, the shopping centre and retail park sector
recorded 32 sale and purchase deals in 2017, up from 29 in
2016 (2).
The shopping centre investment market is expected to remain
largely unchanged, with the pipeline for H1 2018 looking very
healthy and many sales processes already underway. However,
the pipeline does not contain any prime properties on the
scale of Xanadú or Nueva Condomina, which were sold last
year. Therefore, although a high number of sales are expected,
the overall investment volume is estimated to be lower, with
an investment volume of circa "900 million forecast for H1
2018. Based on this figure, the shopping centre sector could
reach a total investment volume of circa "1,800 million in
2018.
2017’s high street investment total came in at "800 million,
the same level as in 2016, largely driven by investor interest in
prime assets in secondary cities such as Granada and San
Sebastián.
(2) excluding standalone warehouses and retail unit transactions
EVOLUTION OF INVESTMENT VOLUME
(shopping centres and retail parks)
3,500
3.500
3,000
3.000
2,500
2.500
2,000
! millions
2.000
1,500
1.500
1,000
1.000
500
500
0 0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: CBRE. 2018 is a forecast.
© 2018 CBRE
RETAIL
The fact that so many large flagship stores are changing
hands is driving high street investment volumes up, with
institutional funds becoming increasingly active in this area.
However, there is still a lack of product in the sector and
demand continues to outstrip supply. We expect investor
activity to continue in the same vein in 2018 and secondary
cities to continue to start playing an ever more important
role.
THE NUMBER OF OPENINGS AND NEW
PROJECTS SET TO GROW IN 2018
Shopping centre development is gradually making a
comeback following a lengthy hiatus. Last year, five shopping
centres were opened, adding a very modest 211,000 sqm to
the total GLA., whilst there are currently about 15 projects
under construction that will add 600,000 sqm GLA to the
market. Although development activity is projected to pick
up, it is not expected to return to the levels of the boom
years.
The pipeline for 2018 comprises 5 to 10 new complexes with
a total GLA of between 225,000 and 275,000 sqm. The largest
openings will be Torrecárdenas (Almería), Finestrelles
(Esplugues de Llobregat) and Torre Sevilla (Seville). The
pipeline for new developments is set to expand a#er 2018,
with a strong focus on modernising shopping centres, both
in terms of design and retail o!ering. In light of these new
developments, many existing shopping centres are being
renovated in order to keep up with new consumer trends.
EVOLUTION OF NEW SBA
(shopping centres and retail parks)
1,200
1.200
1,000
1.000
800
800
Thousands (sqm)
600
600
400
200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Source: CBRE. 2018-2019 are forecasts.
25 CBRE RESEARCH
 LOGISTICS

SUPPLY-DEMAND IMBALANCE

E-COMMERCE DRIVES TAKE-UP
The Spanish logistics sector continues to perform well,
with take-up exceeding 1.5 million sqm in 2017 across
Valencia, Zaragoza, Seville and Malaga, as well as the
country’s two main logistics hubs, Madrid and
Barcelona. In contrast to 2016, when Barcelona hit an
all-time record, Madrid ranked first in 2017, with take-
up rising 126% y-o-y to 913,000 sqm, easily topping the
initial year forecasts.
This spike was mainly due to the increased number of
large lettings signed, with many of the companies
signing these larger leases belonging to the e-commerce
sector. New supply is due to come onto the market in
2018, with take-up estimated to reach 850,000 sqm in
Madrid.
Take-up in Barcelona stood at 465,000 sqm in 2017, down
40% on 2016, a year which included the Amazon and Mango
mega-deals (in which 200,000 sqm and 121,000 sqm were
taken respectively). Excluding these two mega-deals, take-up
remained relatively unchanged. Given that the total vacancy
rate for Catalonia stands at just 3.8%, major changes seem
unlikely in 2018; expecting take-up to be on a par with levels
seen in 2017.
All other cities recorded positive take-up figures, with
Valencia hitting an all-time record of 200,000 sqm. We would
highlight the sharp increase in demand for large spaces of
over 10,000 sqm, which accounted for the lion’s share of
logistics take-up this year. The rest of logistics take-up was
signed in Zaragoza, Malaga and Seville, where 25,000 sqm,
6,000 sqm and 60,000 sqm were taken respectively, levels
that are expected to be repeated again in 2018.

TAKE-UP AND FORECAST

Madrid Barcelona
1,000
1.000
900
800
700
600
Thousand sqm

500
400
300
200
100
0
2013 2014 2015 2016 2017 2018
Source: CBRE. 2018 is a forecast.
© 2018 CBRE
26 CBRE RESEARCH
© 2017 CBRE, Inc. CBRE RESEARCH

27
 LOGISTICS
Available logistics product in
Spain is becoming increasingly
hard to come by, which is why
there is now a desperate need
for new projects that can adapt
to the new sustainability
policies and new technology
© 2018 CBRE
WIDESPREAD NEED FOR NEW SPECULATIVE
DEVELOPMENTS
The low level of available stock in the Spanish logistics
market continues to drive new development activity. These
new projects are gradually adapting their offering in order to
satisfy occupiers’ evermore demanding technical and
sustainability requirements, offering properties that both
benefit from the necessary sustainability certifications and
infrastructure that is capable of adapting to new technology. 
In Madrid, close to 500,000 sqm is currently under
construction and due to come onto the market in 2018,
distributed across the A-2, A-1, A-4 and A-42 hubs, with
standout projects including a 75,000 sqm turn-key project in
Alcalá de Henares and a 74,000 sqm speculative project with
LEED certification in San Fernando de Henares. In
Barcelona, 342,000 sqm are due for completion this year,
with almost all of this located in Tier 2, mostly around Baix
Llobregat, Vallès Oriental and Vallès Occidental.
In other cities in Spain, such as Zaragoza, there are currently
no speculative developments and an alarming lack of
logistics product on the market. There is now a growing
interest in logistics land, especially in large plots on which
new projects can be developed. An example of this was the
sale of a 20-hectare plot in Centrovia (La Muela). A similar
situation is being seen in the two core logistics hubs of
Andalusia, Seville and Malaga, where quality warehouse
supply is practically non-existent, and new developments are
desperately required. Although current rents are not
conducive to speculative development, there is a great deal
of interest in large plots of land for the development of turn-
key projects. Lastly, in Valencia there is a dwindling supply
of available logistics space, but here, a dearth of land supply
is the reason behind the lack of activity, with no new logistics
platforms planned for 2018. The only logistics properties due
to come onto the market are the second Prologis platform,
comprising 24,000 sqm, which has already been fully pre-let
and a 14,000 sqm platform in Ribarroja.
28 CBRE RESEARCH
 LOGISTICS

RENTAL INCREASES
Moreover, unlike previous years, this interest is no longer
merely confined to Madrid and Barcelona, but extends its
In 2017, rental increases of close to 5% were recorded in both
reach to other cities such as Zaragoza, Valencia, Bilbao,
Madrid and Barcelona, although this was limited to areas
Malaga and Seville. The rise in logistics take-up which has
where warehouse vacancy is critically low. This trend is set to
been seen across all cities in 2017 as a result of the thriving e-
continue throughout 2018, when certain locations in the
commerce industry, reignited investor interest in speculative
national distribution hub in Madrid (Cabanillas del Campo
logistics projects.
and Azuqueca de Henares) and in Tiers 1 and 2 of Barcelona
(Barcelonés, Vallès Oriental and Vallès Occidental) will see
Prime yields have continued to harden, coming in at 5.85% at
increases. A#er remaining stable in the two main markets in
YE 2017 in Madrid and Barcelona, compared to 6.25% at YE
2017, in 2018 the prime rent is expected to rise by 7% in
2016, on the back of heightened buyer activity and a lack of
Madrid to "5.60 per sqm/month and 4% in Barcelona up to
quality product on the market. Prime yields are expected to
"6.75 per sqm/month. In Malaga and Seville, where demand
remain stable in 2018, although some transactions are likely
is on the up and quality warehouse supply is at record lows,
to be completed at 5.50% in the case of single assets in prime
rents climbed 10% y-o-y in 2017 and are expected to continue
locations with links to e-commerce.
to trend upwards at a similar rate in 2018. This situation was
mirrored in Valencia and Zaragoza, where rents also rose by
The logistics sector is generating considerable investor
close to 10%, a trend that is set to continue into 2018, given
interest and 2018 looks set to be another very active year. In
the lack of quality product and the fact that there are no
fact, forecasts suggest that the "1,000 million barrier could
speculative developments on the horizon.
well be reached thanks to the portfolio adjustments and asset
rotation that some investors and Socimis are expected to
ANOTHER RECORD YEAR FOR INVESTMENT
complete respectively. As in 2017, we will continue to see
interest from both specialist and more general investors,
Investor interest in the industrial and logistics sector in
whilst investment in speculative projects will continue to
Spain remains high, with 2017 registering "1,240 million and
grow sharply due to the current lack of product on the
hitting an all-time record for the third consecutive year,
market and the expansion of e-commerce.
discounting the acquisition of the Logicor portfolio by Asian
fund CIC.

INVESTMENT VOLUME – EVOLUTION AND FORECASTS

Millions 
1,400
1.400
1,200
1.200
1,000
1.000
800
600
400
200
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: CBRE, 2018 is a forecast.

© 2018 CBRE 29 CBRE RESEARCH

 RESIDENTIAL

CONTINUED RECOVERY IN DEMAND

Housing demand continued to recover in 2017. According to
data from the Spanish Development Ministry, the number of
transactions rose by 17.8% y-o-y to Q3 2017. This increase
was driven by the economic outlook and the fall in
unemployment, as well as the favourable conditions for
accessing housing.
We anticipate that more than 520,000 homes were sold by YE
2017, whilst in 2018 we expect housing demand in Spain to
reach between 550,000 and 570,000 units. Madrid and
Barcelona will continue to account for the highest share of
housing demand and are also the cities where the need for
new-build construction is the highest.
Housing demand is mostly centred on existing housing, with
90% of the transactions completed to Q3 2017 relating to this
type of housing. Low new-build production, as well as the
take-up of a great deal of unsold existing stock largely explain
this situation.
Nevertheless, new-build demand is showing some signs of
recovery. According to the latest available data, more than
35,000 new-build homes were sold up to Q3 2017, equating to
a 5.5% y-o-y increase. However, this figure is a far cry from
the 360,000 units sold on average every year during the pre-
crisis period (2004-2008).
In some tourist destinations such as the Balearic Islands, the
Canary Islands and Valencia, this figure stands well above the
national average.
Home buyers are now less dependent on credit than they
were prior to the crisis. If we compare the amount of housing
mortgages granted (almost 240,000 to Q3 2017) with total
housing transactions (close to 390,000 units to Q3 2017), we
can see that at least 40% of transactions were completed
without bank financing.
The number of people taking out a mortgage to buy a home
continues to steadily rise. In fact, during Q3 2017, the
number of mortgage loans granted increased by 12.40% y-o-y.
The healthy state of banks’ balance sheets and the increased
solvency of households suggest that this trend will continue
throughout 2018.
According to figures published by the Bank of Spain, the
percentage of income that families dedicate to paying their
mortgage has been declining, shifting from almost 50% in
2009 to 34% in 2017. Reduced interest rates and falling
housing prices have made it easier for people to buy homes
across the board.

Foreign demand continues to play a commanding role in the

market. Housing purchases by international buyers rose 15%
y-o-y in 2017, and accounted for 17% of total demand.

HOUSING TRANSACTIONS AND MORTGAGES GRANTED

Transactions
New-built homes
Vivienda nueva Existingusada
Vivienda homes Mortgages
Hipotecas Mortgages
900.000 1.350.000
800,000
800.000 1,200,000
1.200.000
700.000 1.050.000
600,000
600.000 900,000
900.000
500.000 750.000
400,000
400.000 600.000
600,000
300.000 450.000
200,000
200.000 300.000
300,000
100.000 150.000
0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*
Source: INE, Spanish Development Ministry
© 2018 CBRE CBRE RESEARCH

30
© 2017 CBRE, Inc. CBRE RESEARCH

31
 RESIDENTIAL
HOUSING PRICES ON THE UP, BUT STILL A
FAR CRY FROM PRE-CRISIS LEVELS
In 2017, housing prices consistently grew across the whole of
Spain, especially in the more fast-paced markets. According to
the Housing Price Index (Índice de Precios de Vivienda - IPV)
prepared by INE, prices climbed 6.7% in Spain during Q3
2017. Whilst all autonomous regions registered price
increases, sharper spikes of over 9% were seen in Madrid,
Catalonia, and the Balearic Islands.
However, housing prices are still a far cry from the levels seen
during the last expansive cycle. The growth recorded during
the 2004-2008 period (averaging 9.8% y-o-y) remains greater
than the growth recorded in recent years (averaging 6.3% y-o-y
between 2015 and Q3 2017). Price increases are caused by the
market adjusting to current demand. This is why, for the time
being, we cannot confirm whether or not this growth is due to
speculative factors or whether another property bubble is
brewing.
We anticipate that housing prices will continue to climb in
2018, with y-o-y growth reaching circa 5-6%. That said, prices
could rise by much more in the more active markets (Madrid,
Barcelona and the Balearic Islands).
In 2018, we expect average housing prices to increase by around
5-6% y-o-y, especially in areas with greater demand, with Madrid
and Barcelona leading from the front
© 2018 CBRE
32
DEVELOPMENT SHIFTS UP A GEAR
New-build housing development is starting to pick up
slightly, although the number of homes completed remains
low (an annual average of 48,000 units up to Q3 2017). This
figure is not only way below levels seen in 2000-2007, when
the annual average was 482,000, but is also even behind the
267,000 completed each year during the economic cycle
before that (between 1991-1999). However, the increase in
the number of housing permits approved in 2017 (which
grew 19% y-o-y to Q3) indicates that new-build housing
supply will begin to edge up towards the end of 2018.
Madrid headed up development activity, accounting for
around 8% of all permits granted for new-builds in 2017.
Housing production figures are definitely improving, but
they are still well off pre-crisis levels.
The new housing production cycle will be greatly influenced
by the heightened activity of the market’s new players.
Companies such as Neinor Homes, Aedas and Metrovacesa
own significant land banks, which gives them the upper
hand over the other market players. Over the next few
months, their ability to meet new-build demand could make
them the leaders of the markets in which they operate.
CBRE RESEARCH
 RESIDENTIAL

LAND: ONWARDS AND UPWARDS
Serviced development land (suelo finalista) is a highly
sought-after product across the main markets. In Madrid and
Barcelona, as well as the coastal provinces of Malaga,
Alicante and Valencia, the upbeat market climate is having a
major impact on the prices reached in some transactions.
Throughout 2017, a significant number of transactions
involving serviced development land have been completed in
areas where housing demand is highest.
The lack of serviced development land supply in the most
sought-after areas is increasing demand for land under
management. In 2017, some markets started to see
transactions involving land designated for development, and
we expect demand for this type of land continue to tick up
during 2018.
The letting market is becoming ever more professional. Over
the year, new players specialising in managing rental
properties have come onto the market. The gradual maturing
of this market was reflected in the listing of 19 new Socimis
on the Alternative Stock Market (MAB) in 2017 alone. Current
yields on income-producing residential properties compared
to other properties is one of the factors that is prompting
greater investment in the residential market.
The rental market is forecast to continue to grow in 2018. A
market that will be further boosted by the new State Housing
Plan which is due to be approved in 2018 and is intended to
encourage young people to enter the rental market.

LETTING MARKET ON THE UP Letting is gradually becoming

The letting market continues to trend upwards. According to
an increasingy popular option
figures by Eurostat (2016), 22.2% of Spanish households live in Spain, reflecting the
in a leased property. This equates to a 1.8% y-o-y increase,
and 94,000 new households letting in 2016. Greater job
economic, social and work-
mobility and an increasing number of buyers struggling to related changes brought about
get a foot on the housing ladder is driving people towards the
letting option. However, Spain is still a long way off the
by the financial crisis. However,
European average of 33.5%. the percentage of people that
The supply-demand imbalance is driving prices up in major let property still somewhat lags
cities. Proof of this is that, according to Idealista, the annual behind the European average
average growth in Spain stood at 18.4% in 2017. Price
increases in Madrid and Barcelona have remained below the
national average, after growing sharply in previous years.
Both cities remain the most expensive places to live in Spain,
but the fact that rental growth is slowing indicates that they
are starting to plateau.

© 2017 CBRE, Inc. 33 CBRE RESEARCH

 HOTELS

THRIVING SPANISH TOURISM

SECTOR

RECORD NUMBER OF OVERSEAS TOURISTS CATALONIA: NUMBER ONE TOURISM

The Spanish tourism industry continues to benefit from the
political instability that has been affecting other competitor
countries on the Mediterranean coast in recent years.
According to figures released by the World Tourism
Organisation, Spain welcomed 82 million visitors in 2017, up
9% y-o-y and setting a new record that propelled it into
second place behind France, as the world's second most
popular tourist destination. Tourist expenditure rose 12.9%
y-o-y every month apart from December, for which the figures
are still pending.
British, German and French tourists were Spain’s main
feeder markets over the course of 2017. Despite both the drop
in sterling in the past year and a half and the uncertainty
surrounding Brexit, visitor numbers from the United
Kingdom increased the most y-o-y. There was also a
significant rise in tourists from the United States, who
recorded the largest percentage increase of 33.7%.
DESTINATION BLIGHTED BY POLITICAL
INSTABILITY
Catalonia continues to be Spain’s most popular tourist
destination. Although the political instability in the region
caused visitor numbers to fall y-o-y in October and
November, up until November 2017, the overall number of
visitors had broken its previous record y-o-y.
Catalonia also saw the biggest jump in visitor numbers in
absolute terms, although it only grew 6.1% compared to the
average figure of 9.1% for Spain, with the regions of Madrid
and Valencia seeing the largest increases of 16.2% and 15.7%
respectively.
INVESTMENT VOLUME ALSO HIT RECORD
LEVELS
The hotel sector registered a record level of investment in
2017, coming in at over €3,700 million and rising y-o-y by
86%. The Canary Islands, Andalusia and Catalonia were the
regions to record the highest investment volume.

REVPAR – NATIONAL ANNUAL AVERAGE

70 €
60 €
50 €
40 €
30 €
20 €
10 €
0€
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: CBRE Research

© 2018 CBRE 34 CBRE RESEARCH

© 2017 CBRE, Inc. CBRE RESEARCH

35

The potential effects of Brexit
may be partially offset by the
increasing weighting of other
non-European markets and
recovering domestic demand
© 2018 CBRE
HOTEL
AN UPBEAT 2018 AHEAD
The outlook for the hotel market in 2018 is optimistic, with
international demand expected to remain strong. For
example, although we could start to see the effects of Brexit
in destinations with the greatest exposure to the British
market, this may be offset by the increasing weighting of
other non-European markets and recovering domestic
demand.
Furthermore, the main hotel indicators will continue to
trend upwards despite experiencing more modest growth.
Although occupancy rates will struggle to show any
significant growth in destinations such as the Canary Islands,
which enjoy close to 90% annual occupancy, the numerous
hotel refurbishments carried out in recent years to improve
the quality of hotel supply should favour many operators
raising their prices. However, there is a risk that some of
Spain’s traditional competitor destinations, such as Egypt
and Turkey, could target tourists who currently choose to
holiday in Spain. This will be especially apparent for large
tour operators who manage more price sensitive tourism.
Bed supply will continue to improve, although at a more
modest rate. Although access to financing for projects will
keep driving some new hotel development, overall new
development will be limited given that the lion's share of
hotel investment will remain aimed at acquiring and
refurbishing existing hotels. The restrictions regarding new
hotel development in some tourist destinations will also
continue to curtail new hotel construction. We therefore
believe that, as in previous years, demand will continue to
outstrip supply.
Investor activity will remain upbeat throughout 2018, with
the holiday market accounting for a large share of investment
and institutional capital continuing to dominate the market.
Value-add investors will continue to look for new asset-
repositioning opportunities, core investors, already
consolidated in the Spanish hotel sector, will continue
investing in hotels that have already been refurbished, that
are being run by well-known operators and that are largely
leased properties.
36 CBRE RESEARCH
© 2017 CBRE, Inc. CBRE RESEARCH

37
 SPECIALIST SECTORS

A WINDOW OF OPPORTUNITY
FOR M&A

Today, the alternative real estate asset segment is one of the
most-favoured by investors. In fact, the CBRE EMEA Investor
Survey 2017 highlights that 71% of investors are exposed in
some degree to this segment, with the majority of these (64%)
actively looking for new investment opportunities in the
main non-traditional sectors.
This investor sentiment is being buoyed by both the positive
performance across all Spanish macroeconomic
fundamentals and the sector’s potential, given that it is
currently underdeveloped in comparison to its European
counterparts.
ELDERLY POPULATION GROWTH FORECAST
SENIOR HOUSING
The rapidly ageing Spanish population (there are
currently 10 million people over the age of 65) and the
OECD’s recommended number of beds per 100 people
aged 65 and over (5 compared to the current 3.2 in
Spain), are the main reasons why Spain features
amongst the countries that recorded the most senior
housing transactions in the last two years, with
corporate transactions valued at over "1,500 million. Of
particular note were the deals involving Grupo Orpea’s
acquisition of Sanyres from BBVA, Maison de la
Famille’s acquisition of Grupo Amma from Caixabank,
CVC’s acquisition of Vitalia Home from Portobello and
Armonea’s acquisition of Geroresidencias from Gala
Capital.

Variation compared to total population As well as these deals, a good example of M&A activity
17% 18% 17% was seen with PAI Partners, which was the first to

14% 15% trigger the wave of corporate transactions in 2015 when

11% it acquired Geriatros from Magnum Capital for "300

9% million; in 2016, it acquired SAR Quavitae from
6% 7% Palamon, the Gallardo family and Confide for "500
5%
million to become the country’s leading senior housing
group, with 135 residences and 20,000 beds, equating
to a market share of just less than 6% of the total bed
2016 2020 2030 2040 2050 supply.

Population
+80 < 80 years Population 65-79 years
65-79
Source: Eurostat

© 2017 CBRE, Inc. 38 CBRE RESEARCH

© 2016 CBRE, Inc. 39 CBRE RESEARCH
 SPECIALIST MARKETS

PAI Partners later decided to separate its operating business
from its real estate business. It carried out a S&L on some of
the properties in its portfolio and subsequently sold its
business in Spain and France, grouped together under the
name of DomusVi, to the fund Intermediate Capital Group
(ICG) for €2,000 million.
STUDENT HOUSING
The application of the Bologna Process, which standardises
educational criteria across 46 European countries and
provides the opportunity to study in other languages, has led
to greater student mobility, both in terms of Spanish and
international students. The OECD estimates that as many as
8 million students could study abroad in Europe in 2020.
Spain has a total of circa 1.5 million students, with almost
500,000 students studying abroad.
As well as these transactions, the main player in the
sector in recent years has been CVC, who managed to
create one of the largest hospital groups in Europe
comprising 41 hospitals, 64 medical centres, 6,600 beds
and over 26,000 employees. CVC first broke into the
Spanish market when it acquired IDCSalud from Capio in
2011, following this it steadily added to its portfolios via
M&As, before eventually merging with Quiron. Fresnius
later bought the company formed via the merger for
€5,760 million.
It is also worth highlighting the gym market, a sector that
has seen a great deal of M&A activity in recent years, with
standout transactions including the acquisition of GoFit
by Torreal and Mutua Madrileña from Corpfin Capital,
the acquisition of Supera by Portobello Capital and
Altafit’s acquisition of MCH.

With regards to the investment market, the two largest
student housing portfolios, RESA and RIO, were sold in 2017
with CBRE directly involved in both processes. We estimate
that total investment volume in Spain was approximately
€560 million. Once again, this market is seeing considerable
investment from asset managers who are joining forces with
core capital investors.
EMERGING SECTORS
Another real estate product that has really picked up in 2017
is hospitals. In this field, major deals include Nisa’s
acquisition of Vithas from the Gallardo family, and the
acquisition of Rosaleda by HM Hospitales.
As well as the sectors mentioned above, there are also
other sectors that are half real estate, half infrastructure
(or “infrareal”) that are also beginning to emerge and are
expected to be highly active over the next few years.
Among these, we would highlight the car park and data
centre sectors. The car park sector has seen considerable
M&A activity in recent years, with major transactions
including the purchase of FirstState by Parkia (2016) and
the acquisition of Empark by Macquiare Group (2017),
which was a record deal in the sector. After completing an
initial phase of consolidation, the data centre sector is
now beginning to mature further, seeing deals involving
key industrial players, such as Equinix’s acquisition of
Itconic from CarlyleGroup last year.

PROJECTED POPULATION AGED BETWEEN 18 and 24 PERCENTAGE OF PEOPLE WHO DO SPORT

Millions of people % of the total Spanish population over 15 years of age
3.8
3,8 54%
60%
3.6
3,6 de todas estas operaciones, el principal player del
Además 43%
37% 37%
3,4 en los últimos años ha sido CVC, que consiguió crear
3.4
sector 40%
3,2
3.2
20%
3,0
3.0
2,8
2.8 0%
2017

2021

2024

2027
2016

2018
2019
2020

2022
2023

2025
2026

2000 2005 2010 2015

Source: INE. Source: Spanish Government.

© 2017 CBRE, Inc. 40 CBRE RESEARCH

C O N TA C T D E TA I L S
For more information, please contact:

SPAIN GLOBAL

Lola Martínez Brioso Alberto Román Nick Axford, Ph.D.

Director, Research Research Department Global Head of Research
+34 608 001 266 +34 607 189 001 +44 20 7182 2876
lola.martinez@cbre.com alberto.roman@cbre.com nick.axford@cbre.com

Concepción Minguez Erik Jan Buikema Jos Tromp

Research Department Research Department Head of EMEA Research and
+34 626 456 129 +34 678 647 739 Capital Markets
concepcion.minguez@cbre.co erikjan.buikema@cbre.com +31 20 626 26 91
m jos.tromp@cbre.com

Jaume Masip-Tresserra, Ph.D., Neil Blake, Ph.D.

Ph.D. Global Head of Forecasting and
Forecasting and Analytics Analytics
Research Department +44 20 7182 2133
+34 627 588 609 neil.blake@cbre.com
jaume.masip@cbre.com

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www.cbre.com/research.
This report was prepared by CBRE’s Spain Research Team, which forms part of CBRE Research—a network of pre-eminent researchers who
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