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Investment Corrida. Commercial Real Estate in Spain vs. the Pandemic

The residential real estate sector has withstood the coronavirus test with dignity and even strengthened its position. The commercial segment was not so lucky. Offices and retail premises were particularly badly affected. We tell you about the main conclusions of the economists of the Central Bank of Spain, which will be useful to private investors.

The сorona crisis has affected the commercial real estate sector more than anything else. Curiously, the current situation contrasts sharply with the housing market, which is on the rise throughout Europe. And this is not an accident. 

Firstly, business facilities are more sensitive to the economic situation. The demand for retail space, for example, correlates with forecasts of the economic cycle. And housing is a basic human need. Not only investors buy houses and apartments, which makes this sector more stable. 

Secondly, the current crisis, due to its nature (social distancing, numerous knockdowns, mobility restrictions), has hit small local operators hard. This has exacerbated the negative dynamics of indicators in some sectors of the sector, for example, in the hotel and retail sectors. 

Experts of the Central Bank of Spain have analyzed1 how the pandemic affects the commercial real estate market.

Examples of commercial real estate in Spain:
Commercial property for 1 200 000 euro in Barcelona, Spain
1 200 000 €
Commercial property in Barcelona, Spain
3165 sq.m
Spain , Barcelona Parking in the suburbs of Barcelona Private parking in Ospitalet de Llobregat (a suburb of Barcelona). The room area is 3165m2 Number of parking spaces: 100 There are 134 parking spaces in total. Of these: 34 seats have been sold and are not the subject of a transaction, 95 seats have been leased, 2 seats are in...
INDOM
Commercial property for 1 200 000 euro in Madrid, Spain
1 200 000 €
Commercial property in Madrid, Spain
Spain Madrid   Bar in the center of Madrid   Commercial premises for long-term rent for a bar, in a central, prestigious area of Madrid. The contract with the tenant was signed in April 2018 for a period of 5 years. The tenant has made a major renovation of the premises. According to the contract, the tenant pays the...
INDOM
Shop for 2 000 000 euro in Barcelona, Spain
2 000 000 €
Shop in Barcelona, Spain
250 sq.m
The commercial premises are located in the center of Barcelona. The facade of the room occupies an area of 22 m.The room includes a terrace for 6 tables.Technical equipment includes a hood.There is a C-3 license.The property tax is 700€ per year.Utility bills are 160€ monthly.
Knight Frank
Shop for 560 000 euro in Badalona, Spain
560 000 €
Shop in Badalona, Spain
242 sq.m
The commercial premises are located in the town of Badalona in the suburbs of Barcelona, in the area of San Adrian de Besos. The room is located on the central square and includes a spacious Parking and 2 bathrooms. The room is rented out for a restaurant. The rental amount is €2500/month. Profitability: 5.3%.
Knight Frank
Commercial property for 8 500 000 euro in Alicante, Spain
8 500 000 €
Commercial property in Alicante, Spain
Online Viewing Remote Transaction Credit 3-4%
This is a new modern shopping centre URBAN 2 floorshigh and 2 levels underground Parking with a total area ofbuilt 11.519 m2 and total area of the building available for rent in 4.430 m2. Landmore than 5500 m2. On the ground floor there is a terrace of 2000 m2. the Place is great, it is between a highway and a largedevelopment with high...
SPAINLUXINVEST
Shop for 390 000 euro in Gandia, Spain
390 000 €
Shop in Gandia, Spain
167 sq.m
A commercial space is for sale on one of the central pedestrian streets of Gandia. It can be used as a store, restaurant or other business. The room area is 167 m2. The room has a large hall, a toilet, an office, a basement and a hall on the second floor. The house was built in 1970. High-speed Internet, TV, telephone, central gas. Lower...
Albamar Group
Commercial apartment building for 280 500 euro in Calp, Spain
280 500 €
Commercial apartment building in Calp, Spain
65 sq.m
This residential residence is a gift for nature lovers. On the Levante la Fossa beach, guarded by the imposing Peñon de Ifach hill, a few minutes from the salt marshes. An unsurpassed option to enjoy the cosmopolitan summer of the city and the winter full of natural riches of Calpe. Houses with 1 and 2 bedrooms with large front and rear terraces...
Albamar Group
Hotel for 9 000 000 euro on Costa Brava, Spain
9 000 000 €
Hotel on Costa Brava, Spain
Spain Costa Brava 3* hotel a few meters from the beach URGENT SALE Excellent operating hotel 45 minutes from Barcelona and 40 minutes from Girona. A tourist city, near a pedestrian zone, all infrastructure facilities. The beach is a few meters away. Nearby are the tourist towns of Pineda de Mar and Malgrat de Mar. Year of...
INDOM
Commercial property for 1 750 000 euro in Valencia, Spain
1 750 000 €
Commercial property in Valencia, Spain
4000 sq.m
We offer for sale a large commercial space in a fairly new house with a total area of more than 4,000 sq.m. and a massive street facade. The fully renovated premises are located on the ground floor of a residential building and on a total area of 4,000 sq.m. there is a warehouse, supermarket and Parking for customers. The current tenant of the...
ESTATE BARCELONA
Commercial property for 1 200 000 euro in Barcelona, Spain
1 200 000 €
Commercial property in Barcelona, Spain
135 sq.m
Commercial premises in the center of Barcelona, Raval district, one of the busiest tourist streets of the city. It is located on the first floor of a residential building. The total area is 135 sq.m. Currently rented - bar-restaurant. The contract was signed in November 2018 for 15 years. The amount of rent per month is 5,000 euros, per year...
ESTATE BARCELONA
Commercial property for 950 000 euro on Costa Brava, Spain
950 000 €
Commercial property on Costa Brava, Spain
735 sq.m
The hotel is 300 meters from the sea in Sant Feliu de Guixols on the Costa Brava. The total area is 735 sq.m. The hotel has 28 rooms with and without terraces. Large courtyard of 132 sq.m., terrace. Bar, reception area. The building is built in 4 floors. An elevator is installed. The hotel is fully operational at the moment. The agency's...
ESTATE BARCELONA
Commercial property for 893 300 euro in Barcelona, Spain
893 300 €
Commercial property in Barcelona, Spain
489 sq.m
Commercial premises in the Eixample Esquerra area of Barcelona. The total area of 489 sq.m. in one floor. The facade is 7 meters. Currently rented - a chain store of household goods. The amount of rent per year is 32,145 euros per year. The deposit is 2 months. The profitability is 5%.
ESTATE BARCELONA
Shop for 1 500 000 euro in Barcelona, Spain
1 500 000 €
Shop in Barcelona, Spain
139 sq.m
Residence Credit from 2%
Real estate in the central area adjacent to the Rambla Catalunya. The room has a rectangular elongated shape. Very good condition, recently renovated. Currently a shoe store. The area of the main commercial premises is 80 sq.m., the remaining area is used as a warehouse with an area of 59 sq.m.. Currently, the owner operates the premises...
­Cadespa Luxury Real Estate
Commercial property for 900 000 euro in Barcelona, Spain
900 000 €
Commercial property in Barcelona, Spain
427 sq.m
Price reduction. The old price is 1,080,000 euros. Commercial premises in the Eixample district of Barcelona. A street with high traffic. The total area of 427 sq.m. Consists of two floors: ground floor 248 sq.m., basement 179 sq.m. The contract is signed at the time of purchase for a period of 10 years. The quota for communidad is 578.40...
ESTATE BARCELONA
Commercial property for 112 000 euro in Guardamar del Segura, Spain
112 000 €
Commercial property in Guardamar del Segura, Spain
112 sq.m
Commercial Unit in Guardamar del Segura. Commercial space in the center of Guardamar del Segura with the possibility of converting it into a house to live. It is in perfect condition, next to restaurants, bars, shops, town hall and church.
OLE INTERNATIONAL HOMES S.L.
Shop for 930 000 euro in Barcelona, Spain
930 000 €
Shop in Barcelona, Spain
587 sq.m
Residence Credit from 2%
Chain supermarket in the suburb of Hospitalet - Barcelona. Location. Barcelona, a very densely populated residential suburb of the Hospitalet, Colblanc district. A two-outlet store, a supermarket chain brand with more than 100 stores throughout Spain. The yield is about 7.8%. The beginning of the contract: when signing the contract of...
­Cadespa Luxury Real Estate
Commercial property for 4 400 000 euro in Bendinat, Spain
4 400 000 €
Commercial property in Bendinat, Spain
Commercial land for sale next to the city of Palma in a well consolidated area which is suitable for shopping complex, supermarket, hospital or any other commercial purpose.
First Mallorca
Shop for 650 000 euro in Eixample, Spain
650 000 €
Shop in Eixample, Spain
300 sq.m 4.6% per year
Residence Online Viewing Credit 2-3% Business on sale
A spacious apartment with a tenant is being sold on one of the busiest streets in the city center. It is located on the 1st floor of a residential building and has a bright and visible facade of 4 meters. The object was leased for a long-term lease by a well-known chain of pet shops with a large base of regular customers. The rental income is...
DECART PROPERTY PARTNERS
Commercial property for 577 500 euro in Barcelona, Spain
577 500 €
Commercial property in Barcelona, Spain
325 sq.m 5.2% per year
Residence Online Viewing Remote Transaction Business on sale
Commercial property situated in Sants corner with Av. Madrid. It is well connected with public transport. Currently, the property rented to a hairdressing academy Conditions: Term of contract: 10 years (2 years mandatory) Rent: 32.964€ / year Guarantees: 2 months of legal deposit plus 2 months of additional guarantee Expenses:...
Residae Barcelona
Commercial property for 1 100 000 euro in Barcelona, Spain
1 100 000 €
Commercial property in Barcelona, Spain
104 sq.m
Commercial premises in the Gothic quarter of Barcelona. The total area is 104 sq.m. The facade is 3 meters. Currently rented – ice cream kiosk. The cost of rent per year is 66,000 euros. The deposit is 2 months. The profitability is 6%.
ESTATE BARCELONA

Less Construction

According to the Ministry of Development, the number of permits issued for the construction of non-residential buildings in 2020 decreased by 18%. A similar decline was noted in the housing sector. Therefore, the share of commerce remained stable at just over 20%, as in previous years.

However, if you look at the different sectors of commercial real estate, you can notice significant differences. Thus, the number of permits for the construction of industrial facilities and offices decreased by 39% and 20%, respectively. And in the commercial services and logistics sectors, on the contrary, there was a slight increase of 1% compared to the results of 2019.

This imbalance, as Central Bank economists note, is related to the reaction to the coronacrisis. The companies believe that in the current conditions the share of e-commerce will increase, hence the demand for warehouses and logistics services.

The cost of planned projects in the field of commercial real estate has also decreased. The biggest decline is again in the field of office and industrial real estate (-16% and -37%, respectively). But even against this background, warehouses look much better (+8% to the cost of projects).

Graph 1
Source: Banco de España

Sales Have Collapsed

In the first half of 2020, sales of commercial real estate in Spain collapsed by 60%. The recovery began in the third quarter, but it was not enough to surpass the results of the previous period. As a result, by the end of the year, sales of commercial real estate decreased by 33.8%.

Sales in the prestigious areas of large cities, which usually generate the greatest retail activity, have sunk especially strongly. The decline for the year was 47.9%.

As for the type of commercial real estate, offices coped with the crisis the worst, with a decline in sales of which reached 47%. The number of transactions with retail facilities decreased by 33.6%, with warehouses - "only" by 30.6%.

Graph 2
Source: Banco de España

Lending at a Minimum

Banks have also reduced their turnover in commercial real estate. The volume of loans dropped by 36% in 2020, reaching a minimum over the past 15 years. 

The analysis also shows that the conditions for issuing loans have tightened. The acceptable threshold of the loan/collateral ratio (LTV) is decreasing – more and more often banks issue a maximum of 80% of the property value. 

At the end of the first quarter of 2021, the outstanding balance of mortgage loans secured by commercial real estate reached €84 billion, which at that date was 15% of the total mortgage portfolio of Spanish banks. At the same time, the volume of such loans remains significant if measured by the own funds of credit institutions. These products account for 40% of the Tier 1 Ratio (an indicator of the bank's fixed capital in comparison with total risk assets). Therefore, a significant decrease in the solvency of debtors in this segment can lead to problems in the entire banking system.

The Price Correction Continues

Commercial real estate in Spain in 2020 has fallen in price in all directions. At the same time, prices did not fall as significantly as sales. 

According to the results of the IV quarter of 2020, business facilities lost an average of 8.8% of their value. For comparison, Spanish commerce finished 2019 in a small plus, prices increased by 0.9%. 

Preliminary data show that the price correction continues in 2021.

Also read: Seven Typical Mistakes of Real Estate Investors

Conclusions

Economists of the Central Bank of Spain believe that due to the pandemic, the trends that began to form earlier have accelerated. For example, the development of e-commerce, which requires advantageously located logistics centers, has mitigated the impact of the crisis on this type of real estate. The reduction in the number of transactions in the street retail segment may reflect the market's reaction to new consumer models associated with a sharp increase in online shopping. Similarly, the trend towards remote work has led to a decrease in demand for office space.

At the same time, we should not discount the opportunities that have emerged due to the current crisis. The main thing is that the objects have become more accessible. And sellers are probably now ready to make concessions to buyers. Therefore, investors who are counting on long-term investment of capital can benefit from the current situation.

Source: Impact of the Covid-19 pandemic on the Spanish commercial real estate market

Quoting conditions of Prian.info materials

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