Commercial Real Estate meltdown in Spain

On August 14, 2012 by Phil Champagne

Metropolitan Areas of Spain, 2007 data. (Photo credit: Wikipedia)

I came across an article from the financial times. http://www.ft.com/intl/cms/s/0/96705c5a-e2ea-11e1-bf02-00144feab49a.html#axzz23WsmedH8

From 58 transaction in the first quarter of the year to only 3 transactions in the second quarter! Only 3 transactions, a 90% drop.

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The Spanish and Italian commercial property markets have all but collapsed with the number of transactions in both countries falling more than 90 per cent in the three months to July as investors worry about the future of the eurozone.

Only three property transactions were registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy the slide was even more pronounced, with just two buildings being traded during the period, down from 56, according to data from Real Capital Analytics.

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The severity of the decline highlights investors’ concerns about the risk of owning fixed assets in the two countries given the uncertain direction of the eurozone economy.,

The total value of transactions for offices, shops and industrial property in Spain was €67m for the second quarter, down 74 per cent from €260m in the first quarter. The inactivity meant Spanish property transactions were below those of neighbouring Portugal for the first time.

“Heightened risk aversion, particularly among cross-border institutional investors, has led to an almost complete collapse in southern European acquisitions,” said Joseph Kelly, director of market analysis at RCA.

In Italy, a few property sectors, such as the Milan retail space market, had held up well during the downturn. However, growing concern over the country’s economy and its future position in the eurozone appear to have snuffed out investor confidence across the market.

Meanwhile in the Vancouver, BC, Canada, the currently most expensive city in the world, prices keep soaring:

 

Record-setting prices, record lows for borrowing costs. It may sound like a housing-sector story but it’s the valuations on apartment deals that are going through the roof.

A handful of recent transactions have grabbed the attention of some in the real estate industry because of returns that are not much better than government of Canada bond yields — considered almost risk-free.

Capitalization rates — the ratio between the annual operating income and the value of a property — have dropped to as low as 2.5% on some deals. CMarine Building and friends, Vancouver, BC, Canadaompare that with government of Canada five-year bonds trading around 1.35%.

Cap rates (yields on commercial property) of only 2.5%, now that is called a bubble.

 

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