Madrid
Global pension funds, insurers and other investors are holding back on buying office space in Catalonia due to fears a split from Spain could lead to an exodus of business from the region.
Corporate property in the wealthy northeast and its capital Barcelona has been a hot ticket, but interest has cooled since October’s disputed independence referendum and pro-independence parties’ bid to reinstate sacked leader Carles Puigdemont. Investment in office space in Catalonia from October to December dropped by 63 per cent from the previous quarter and 84 per cent on the year-ago period to 71.5 million euros, according to data provided by CBRE.
The concern is that if Catalonia splits from Spain, it would drop out of the European Union, forcing companies to move from the region to avoid being subject to tariffs.
“We speak regularly to our investors and they have told us they don’t want to touch Barcelona office investments for now,” said Carsten Czarnetzki, country head for Spain at AEW Europe, which has 26.6 billion euros of assets under management in Europe of which 430 million euros are in Spain.
The figures, along with a drop in tourist numbers, are a sign the political standoff is already having an economic fallout as funds wait to see if companies which have already moved their registered headquarters follow up by shifting employees. Some investors are using the uncertainty to win discounts.
Meridia Capital, a Barcelona-based fund investing in Spanish real estate on behalf of global pension funds, insurers and sovereign funds, got 5 per cent off the price of shopping centre Barnasud, bought for 21 million euros in November, said Javier Faus, CEO.
“I said: ‘Give me a small discount to reflect the Catalan situation’,” said Faus, whose firm has invested 800 million euros in real estate over the last four years, mostly in office space split more or less equally between Madrid and Barcelona.
Meridia has 400 million euros of assets under management in Barcelona and Faus said high demand and a scarcity of buildings had made discounts harder to get earlier in the year. Real estate accounted for 11 per cent of foreign investment in Spain in the first nine months of 2017, making it the second-biggest sector to receive funds from abroad after energy, according to economy ministry figures.
Spain is still an attractive destination for those seeking to invest in commercial real estate. The government expects the economy to grow by around 3 per cent this year, making it one of the fastest-growing in Europe.
However, the weighting of Catalonia in investment in Spanish office space roughly halved in the fourth quarter compared to the three previous quarters to 18 per cent, the CBRE data showed.
Catalonia’s capital Barcelona is a thriving Mediterranean city that has drawn many corporate tenants in the technology and media businesses in recent years from Amazon.com Inc to online game maker King, creator of Candy Crush. The region is a manufacturing and industrial hub, accounting for one fifth of the Spanish economy and a quarter of exports, and it was named top European large region of 2018-19 for its strategy in attracting foreign investment by FDI Intelligence, a Financial Times unit.
“It’s true that many have put investment on hold. On the bright side, no one has told me to get out of Catalonia for the next ten years,” said Faus of Meridia Capital.
The Catalan rental market, which has seen prime office rents rise by nearly a third since Spain emerged from recession in 2013, has so far held up, said Ines Arellano, director of investor relations at Merlin Properties, which has around 250,000 square metres of office space under management in Catalonia.
There were fewer deals in the office rental market in the fourth quarter, but rents and occupancy rates continued to rise, she said, adding that the rental market took longer to react to external factors than investors.
Rents averaged 23.5 euros per square metre for prime office space in the fourth quarter of 2017, compared to 31 euros in Madrid, according to CBRE. Average yield was 4.25 per cent. That compared to 17.75 euros per square metre in the fourth quarter of 2013, the year that Spain emerged from recession.
More than three thousand companies moved their registered headquarters out of the region from October to December after a chaotic referendum led to a declaration of independence and the sacking of the regional administration.
Companies continue to move their registered headquarters from the region, with the Spanish units of RayBan sunglasses maker Luxottica and chewing gum company Wrigley both shifting to Madrid earlier this month, according to company register data.
But there has not been a flow of office jobs out of the city, however, and business areas like new development 22@ in the north of the city continue to draw big name tenants.
Office blocks under construction in 22@ — a trendy area aimed at technology and media companies — have been pre-rented to Amazon.com Inc, US shared office space company WeWork and Norwegian media company Schibsted. Amazon closed the deal to rent 11,000 square metres in June 2017, according to the building’s then owner, Grupo Castellvi.
“We don’t know what effect the political situation will have on demand,” said Czarnetzki of AEW. “We don’t think this situation is going to be resolved quickly. It’s a new reality that we’ll have to live with.”
