The sun and the beaches, the food and the wine are among many reasons why people feel good about Spain, and this is reflected in the millions of tourists visiting the country each year. Last week, package holiday giant Tui reported "encouraging booking momentum" with numbers in the first weeks of 2023 exceeding 2019 levels. With tourism accounting for 8% of Spanish GDP and 11.7% of employment, according to the National Statistics Office, Tui’s booking momentum is encouraging for Spain as well.

At the fifth Iberian REIT & Listed Conference in Madrid, this economic optimism was shared by Ignacio de la Torre, chief economist at Arcano Partners. His outlook is for inflation to fall to 2%-2.5% and the European Central Bank cutting rates in 2024, which would see wages outgrow inflation by the summer of 2023. Due to its more cyclical economic composition, Spain should grow faster in an upturn after underperforming in 2020. Medium term, re-shoring and outsourcing back to and within the EU should benefit Spain with its relatively high unemployment, lower costs and skilled workforce.

The real estate industry has less favourable memories of Spain since it was badly hit during the global financial crisis, so it might come as a surprise that the attendees were quite optimistic about the 2023 outlook.

Pere Viñolas, CEO of Inmobiliaria Colonial, a Spain-based European office REIT, said for the outlook is negative as they would fall, but leasing markets were incredibly strong in 2022 and the annual indexation is pushing up rents. He believed that when considering a 5-year investment period 2023 may offer some great opportunities.

Unlike the UK where average yields have risen sharply in recent months, the Spanish market has not yet repriced and therefore CEOs would prioritise investing in capital expenditure until prices adjust in line with the higher cost of capital. Current transaction volume is low after falling off a cliff in the fourth quarter to €2.3 billion, compared with the €13.1 billion in the first nine months. It could reach €2.5 billion in the first quarter of 2023 which is close to the five-year average, according to BNP Paribas Real Estate.
 
Even though he expected full year investment in 2023 to be up to 20% below 2022 levels, Borja Ortega, CEO of broker BNP Paribas Real Estate Spain, has become more optimistic since Christmas and with brokers increasing their pipeline, he now expects the market to come back strongly over the summer. In a way that could make 2023 an inverted version of 2022.

Despite the Spanish REITs outperforming Europe in 2022 there was frustration that equity investors apparently had priced in the higher interest cost due to inflation, but not its positive effect on rents. Rents in Spain are indexed, and inflation is passed on in January. Take-up in their portfolios was also strong with tenants switching to quality buildings, hence the planned investment in capex and new developments.

Colonial, which also owns a portfolio in central Paris via its subsidiary Societé Foncière Lyonnaise, reported almost 100% occupancy in Paris and a record year of new leases. They witnessed the same trend in their Spanish portfolio of prime office buildings.

Retail performance in prime locations and retail parks was robust in 2022 and even shopping centres were showing improvement according to Lar España. Despite the number of overall stores declining in Madrid, large retailers are expanding and opening new flagship stores. INApril, Inditex opened its largest shop in the world at 7,700 square metres for its Zara and Stradivarius brands in Madrid's Plaza de España.

Spain's build-to-rent sector remains very attractive according to David Martinez, CEO of listed housing developer Aedas Homes. The built-to-sell market for mid-to-high tickets was very strong, but the mid-to-low ticket market is shifting to renting. This would offer a great opportunity to build a large multifamily portfolio, in his view.

The sentiment among real estate professionals in Madrid was positive and if we had to describe it with one word like we did for the UK (upbeat), France (confident), Germany (worried) and the Benelux (cautious), the word for Spain would be “optimistic”. This would put Spain on par with the “upbeat” Brits and would offer further reason to feel good about Spain in 2023!