retail spain september 2019 spotlight high street retail ... · madrid retail market when analysing...

SPOTLIGHT

Savills Research

Retail Spain – September 2019

High Street Retail in Spain

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Spotlight Retail Spain September 2019

Economic OverviewThe growth rate of the Spanish economy during

2018, 2.6%, was clearly below the figures reached in the previous three years, approximately +3% annually. However, this is well above the average in neighbouring countries (1.8% in Euro Zone). In 2018, household consumption growth, a key indicator of the retail market, remained practically the same as that of 2017 (2.4% in 2018 vs 2.5% in 2017), with external demand causing the decline in GDP. During Q2 2019, the economy grew by 0.5% compared to the previous quarter (or 2.3% y-o-y), showing a slight improvement in performance.

Employment, on the other hand, recorded a 2.5% growth in Q2 2019, 30% below than that registered in the previous quarter, representing an increase of 460,000 full-time jobs in a year. At the end of Q2 2019, there were 19,327,000 people employed in Spain.

In 2018, the performance of the retail sector in Spain remained flat. Throughout the entire year, eliminating seasonal and calendar effects, the sector grew by 0.7%, the lowest rate since 2013. Independent retailers (having approximately 1 store in operation), which performed the worst, registered a decrease in sales by 0.8%. Meanwhile, large retail chains (with more than 25 stores and more than 50 employees) demonstrated a positive performance, growing both in sales and occupancy (+2.4% in sales / +2.8% in occupancy). The rest of the retail formats (small chains and large stores)

also grew, albeit more moderately. To date, Q2 2019, the retail sector has shown an average increase of 2.2%; this is especially noticeable in large and small chains, where it stands at 3.5% and 3.9%, respectively.

The latest Consumer Confidence Index (CCI) data released in August 2019 stands at 86.00 points, below 100, at which point perception begins to turn positive. The low valuation of the CCI is mostly due to a perception of possible slowdown surrounding the current economic situation and the labour market. However, it is worth mentioning that this figure is above the historic average, which is recorded at 81.00 points.

For 2019, the economy expects moderate growth. According to the estimations of Focus Economics, Spain s GDP will grow by 2.2% in 2019 and 1.8% in 2020. These figures are above the average of the Euro Zone (1.4% for 2019), which includes the economies of Germany (1.3%) and France (1.4%). Furthermore, job creation is expected to continue, and if this scenario is met, the economy could create around 800,000 jobs within the next two years. Moreover, the unemployment rate is expected to be reduced to 14.0% by 2020, according to the data of Focus Economics.

Madrid Retail MarketWhen analysing Madrid s prime high street

retail market, two distinct areas of the city

The High Street Retail sector adapts itself to the needs and demands of today’s consumer, in a fast-changing environment

High street retail investment hit historic highs of ca. €1,160m in 2018

• Average rents in the prime areas of both Madrid and Barcelona have remained stable over the past three years, with minimal annual changes. Portal del Angel in Barcelona remains Spain’s most expensive street, followed closely by Calle Preciados in Madrid.

• Demand for retail space remains high. Retailers are keen to open flagship stores in strategic locations but will ask for strong concessions from their landlords in the form of tenant incentives and/or rent-free periods, combined with stepped rent structures.

•The banking, supermarket and food & beverage sectors experienced a sharp increase during 2018, with numerous openings. Although the fashion industry recorded a decline in sales during the first half of this period, it has since then been gradually recovering.

• The vacancy rate in the prime areas of each city has remained stable over the past three years (7.6% in Madrid and 5.8% in Barcelona, in 2019) due to the delay of relevant projects coming into the market.

• In 2017, e-commerce hit record highs, with a total turnover of €30,406m, representing a +26% y-o-y increase.

• Yields remain stable with the prime yield in both Madrid and Barcelona standing at 3.25%, while in other major Spanish cities the spread in yields can range from 50 to 100 bps.

Graphic 1: Spanish Economy: GDP, household consumption and employment

Source Savills Aguirre Newman Research

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High Street Retail Spain

stand out – Barrio Salamanca and Zona Centro. Comprised of seven commercial streets, the two zones have a total stock of 905 shopping units.

Barrio Salamanca is highly regarded for its luxury and premium brands, of which the high-end shopping streets of Serrano, Ortega y Gasset and Goya make up the city s “Golden Mile”, with a current total stock of 366 units. Affluent shoppers, both domestic and international, flock to this commercial district in search of the premium luxury brands and the local designer boutique scene, combined with the finest restaurants in town.

In contrast to this premium shopping experience, Zona Centro, with its fast fashion brands and popular restaurant chains, provides a more mainstream consumer appeal. The main commercial streets of Preciados, Gran Vía, Fuencarral and Puerta del Sol comprise the most active retail hub in the city, with over 539 premises. Excellent public transport, along with close proximity to the major tourist attractions, contribute to the hustle and bustle of this busy retail district. Astronomical footfall figures (mostly from tourism) are the main driver in this retail area, on which mass market retailers thrive.

As in other Spanish cities, the most common retail units in Madrid measure <200 sq m, accounting for 51% of the total stock in the prime shopping areas, with a relatively even distribution between Barrio Salamanca (45%) and Zona Centro (55%). Almost half of these units are found on Calle Fuencarral, with the second most being found on Calle Goya. The majority of premises measuring >700 sq m are located on Calles Gran Vía (40% of total) and Serrano (19%), where retailers generally establish their large flagship stores. A case in point was the recent opening of Huawei’s major store at Gran Vía 48 with 1,100 sq m.

For a better overview of the Madrid market in terms of retail activity, Barrio Salamanca dominates the luxury sector. High-end boutiques represent 24% of all occupied units in Barrio Salamanca, mainly located on Calles Serrano and Ortega y Gasset. In stark contrast, Zona Centro is home to the majority of mass market fashion flagships, as well as restaurant and coffee shop chains accounting for 19% in this zone; in fact, 70% of all total units allocated for restaurant and coffee shop chains in the prime areas analysed are located on Calles Gran Vía and Fuencarral. The fashion sector makes up 39% of all total occupied units. This sector is well represented in both Barrio Salamanca and Zona Centro, accounting for 32% and 36% in each prime area, respectively. If we focus on the most prime stretches on each street, fashion is the overwhelmingly dominant subsector.

In Madrid, the vacancy rate in the two shopping areas has remained stable over the past three years, standing at 7.6% this year. A number of relevant

retail projects, which should have already reached maturity, have seen delays and as a result the take-up figures, which could have otherwise been higher, have stagnated.

It is important to take note of a few retail units that have been on the market for several years which have finally been taken up in recent months: Serrano 2, 7 and 94 are now occupied by Johnnie Walker, CaixaBank and Bang & Olufsen, respectively, while Serrano 53 has been secured as the future premises of Bankia.

Average rental prices in the prime areas of Madrid have remained stable over the past three years, with minimal annual changes. Calle Preciados commands the highest average rents (€279 per sq m/month), followed by Serrano (€248 per sq m/month) and Gran Vía (€243 per sq m/month). However, retailers are willing to go well beyond the established figures for the right unit in the right location, with a few examples of signed leases above the €300 per sq m/month mark.

Fashion; 32%

Luxury; 24%

Services; 17%

Restaurants; 10%

Supermarket; 7%

Cosmetics; 0,5%

Various; 10%

Fashion; 36%

Luxury; 1%

Services; 9%Restaurants;

19%

Supermarket; 3%

Cosmetics; 6%

Various; 26%



Banks, supermarkets and food & beverage establishments made up the lion s share in retail demand

Anthropologie, Fendi, Urban Outfitters and Uniqlo chose the city as their gateway to the Spanish market.

The majority of shopping units in Barcelona have a size of <200 sq m, accounting for 46.5% of the supply in the prime commercial districts. This is followed by medium-sized units of 200-400 sq m, which represents 30.7%, and large units of >700 sq m with 15.4%. Of particular note is Paseo de Gracia in Prime A, housing 32% of large stores (>700 sq m) in the prime commercial hub, while Rambla Catalunya and Rambla Canaletas in Prime B contain 64% of the centre’s small shops (<200 sq m). Within the last 12 months, a total of 37 shops measuring <200 sq m have opened in prime A and B, demonstrating interest in this type of surface area. A significant addition to Barcelona s shopping district will be the opening of Primark, securing a space of >7,000 sq m.

When breaking down the Barcelona retail market by activity, as in Madrid, the fashion sector is dominant (39% of all occupied units), followed by various (20.3%) and food & beverage (18.8%). In Prime A, fashion stores account for more than half of the occupancy, while in Prime B they make up 34%.

It is important to highlight that the majority of restaurants are found in Prime B, with Rambla de Canaletas hosting over 39% of total restaurants in the central retail districts. Of the 57 luxury boutiques found in both commercial zones, Paseo de Gracia is home to 46, making it the first choice for shoppers looking for high-end brands.

Over the last year, Barcelona s prime retail area has recorded a slight decrease in availability. The vacancy rate, posted up until the date of this report, is 5.8%, close to 200 bps below last year s figures. Rambla de Canaletas accounts for many of these newly-occupied premises going from 16 to just 6 available units.

As in Madrid, average rental prices in the prime areas have remained stable, with only a slight y-o-y increase. Portal del Angel continues to be the most expensive retail street (€285 per sq m/month), not only in Barcelona but across all of Spain. Coming in second place in Barcelona is Paseo de Gracia (€263 per sq m/month), followed by the notable addition of Plaza de Catalunya (€250 per sq m/month).

Other Regional CapitalsIn the last 24 months, both retailers and

institutional investors have shifted their attention towards other major Spanish cities, most noticeably to those with a significant tourist pull and/or strong local economies. Key drivers include considerably lower rental levels and higher relaxed yields in the best retail locations in other regional capitals when compared to Madrid and Barcelona, while still maintaining healthy effort ratios, brand notoriety and higher levels of return in liquid markets.

Barcelona Retail MarketThe high-end shopping district in Barcelona

can be divided into two zones according to the degree of exclusivity: Prime A consisting of Portal del Angel, Portaferrisa, Paseo de Gracia and Plaza de Catalunya, and Prime B, comprising of Rambla Catalunya, Pelayo, Rambla Canaletas and Avenida Diagonal. The two areas contain a total stock of 934 shopping units, 293 of which are in Prime A with the other 641 in Prime B.

Due to increased interest from retailers on Plaza de Catalunya (primarily the recent inauguration of

Five Guys and the future openings of Huawei and Primark), we have included the relevant data of this stretch for 2019, which will form part of Prime A.

Despite the political uncertainty, Barcelona continues to be an appealing market for brands seeking retail opportunities. This is due to its reputation as one of the most cosmopolitan cities in the world, attracting massive numbers of tourists every year, and the disposable income of its inhabitants is well above the Spanish average. Consequently, brands often open their flagship stores in the prime retail areas in Barcelona. For instance,

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Rental price evolution(per sq m/month)

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Serrano 245 246 248

185 185 185José Ortega y Gasset

162 160 160Goya

ZonaCentro

Preciados 275 277 279

Fuencarral 153 158 160

Gran Vía 235 240 243

Puerta del Sol 205 205 205

Graph 4: Vacancy Barrio Salamanca and Zona Centro. 2018 and 2019

Table 1: Rental values in Madrid



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Some of the most sought-after locations for brands and investors are Malaga’s Calle Marques de Larios, Puerto Banus in Marbella, Bilbao’s Gran Via, San Sebastian’s Calle Loyola, Valencia’s Calle de Colon and Mallorca’s exclusive Paseo del Born. The common denominator in these specific locations is tourism, as well as convenient city infrastructures and resilient local economies. In all these locations the main retail hubs have been heavily invested in by local councils and offer a superior shopping and leisure experience.

It is important to highlight the strong levels of domestic capital purchasing in even smaller cities (mainly province capitals), where yields are often above the 6% mark and competition from out-of-town retail schemes is slim or non-existent altogether. Institutional foreign capital, however, is still hesitant to venture into these smaller markets unless they are part of larger portfolios.

Retailer ExpansionDriven by stable consumer demand in the

past few months, the Madrid and Barcelona retail markets have enjoyed considerable growth, particularly in the sectors of banking, supermarkets and food & beverage. On the other hand, cosmetics, fashion and telephone companies have been more cautious in their expansion plans.

BanksFollowing the success of the flagship concept, banks

seem to have adopted the model of high street fashion brands, favouring large flagship branches in key strategic locations in major cities and slimming down their networks in secondary locations.

In Madrid, notable examples of banks implementing this strategy include CaixaBank, which opened a massive branch at Calle Genova 17 last year, a 750 sq m unit at Serrano 7 earlier this year and has recently announced the lease of a 3,900 sq m office on Plaza Colon 1. Bankia will set up a branch of 1,890 sq m at Calle Serrano 53, while another major national bank, pending planning approval, will establish a large office in the district of Barrio Salamanca. Furthermore, Pibank, an Ecuadorian bank focused on online banking, has recently opened its first branch in Madrid on Calle Velázquez.

In Barcelona, CaixaBank, BBVA and Banco Pichincha have been active in establishing new branches in the downtown area

Moreover, for Banco Santander, diversification has refocused their core business. Three branches in Madrid, named Santander Work Café, are now offering not only banking facilities, but also a cafeteria and co-working space in the same office. Banco Santander may prove to be a trendsetter for the future of banking.

SupermarketsIn recent months, within the supermarket sector

in Madrid and other major cities, there has been a

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Fashion; 53%

Luxury; 10%

Services; 10%

Restaurants; 11%

Supermarket; 1%

Cosmetics; 3%

Various; 13%

Graph 5: Business sector breakdown. Prime A Barcelona

Graph 6: Business sector breakdown. Prime B Barcelona

Graph 7: Vacancy Prime A and Prime B. 2018 and 2019


Fashion; 34%

Luxury; 1%

Services; 12%Restaurants; 22%

Supermarket; 2%

Cosmetics; 4%

Various; 25%



move to open larger stores in highly consolidated neighbourhoods. This trend can be attributed to consumer demand for convenience in terms of closer proximity and longer opening hours.

The German supermarket brand Aldi is a noteworthy example, having recently expanded into Madrid s city centre. Whereas in the past they were purely based outside the city, last year they opened a two-storey branch on the bustling corner of Cuatro Caminos. While this store caters to residents in a lower income bracket, Aldi is also serving a more affluent clientele with their new branch in the upmarket district of Barrio

Salamanca, on Calle Francisco Silvela, and the district of Chamartin, on Calle Santa Rita.

Other supermarkets that have established new branches with over 1,000 sq m include DIA in Madrid at Calle Atocha 80, while Lidl has opened five new stores nationwide in recent months, with two in Barcelona, one in Madrid, one in Valencia and another in Guipuzcoa.

Another indicator of the trend towards consumer convenience is the extension of French supermarket chain Carrefour s opening hours to 24h in select locations. This brand has launched a new concept called Carrefour Bio, specialising

in organic and ecological products, with its first eco-supermarket in Spain located on Calle Velarde in Madrid.

With regards to investment, supermarkets are seen as a resilient asset type within the retail segment, with strong investment demand specifically focusing on brand, covenant and lease duration.

Cosmetics and PerfumeriesSmall to medium-sized cosmetic and perfume

shops have been launched in Madrid and Barcelona. Three striking examples are expected to impact their respective commercial hubs in the upcoming months.

After the successful establishment of their store at Fuencarral 16, the French cosmetics giant Sephora is building on this with the recent inauguration of their 610 sq m unit on Barrio Salamanca s prime retail pitch, Calle Serrano 36. Primor, Spain’s leading brand, provides stiff competition with their newly-inaugurated three-storey 1,400 sq m store located in the heart of the city centre, on the corner of Puerta del Sol and Preciados, with plans to open another store at Calle Goya 59 in the near future. High-footfall hotspots have proven to offer record-breaking sales for cosmetics retailers.

In Barcelona, the Dutch company Rituals has opened a 188 sq m store at Portal del Angel 36, as part of their expansion plan and brand strategy.

Food & BeverageThere has been a considerable rise in the opening

of restaurants, bars and coffee shops in recent months. Burger establishments continue to trend upwards, with Five Guys dominating the niche market, opening 16 new branches nationwide within the last three years (9 on high street locations and 7 in shopping centres). Alongside this American brand, Goiko Grill, The Good Burger and Carl s Jr match the high demand for quick, convenient food in the city.

Whereas burgers are traditionally popular, a new type of restaurant has emerged in Madrid. Poke, a Hawaiian dish prepared with fish, rice and salad, has become a healthy and trendy alternative to fast food. Around 18 establishments have successfully been launched, all within the last 20 months.

While Poke could prove to be a food fad, one sector of the market is almost certainly here to stay. A demand for vegan and vegetarian establishments stems from a desire for healthy, eco-friendly, ethically-sourced food. Consequently, many have popped up in Madrid, with at least 20 restaurants opening across the city within the last two years.

A Canadian café franchise, Tim Hortons, has exploded in popularity, after being introduced to Spain in late 2017. In Madrid alone, they run 15 high street coffee shops (plus two in shopping centres),

Rental price evolution(per sq m/month)

2017 2018 2019

Prime A

Portal de l Angel 280 285 285

150 150 150Portaferrisa

255 260 263Pº de Gracia

Plaza Catalunya na na 250

Prime B

Rambla Cataluña 100 100 90

Pelai 135 140 135

Rambla Canaletas 130 130 132

AV. Diagonal 75 75 78

Table 2: Rental values in Barcelona


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The fashion sector has suffered mainly due to seasonal changes but is back up on its feet and running

with plans to expand even further in the coming months.

However, not all consumers are seeking fast and cheap eats. There is a growing demand for fine dining, with people happy to pay in excess of €35 per head. In this high-end niche, restaurateurs carefully select strategic locations in the city in order to cater to their target market. In the case of Madrid, it is important to note that several highly-concentrated mid-range to high-end restaurants have been established in the surrounding areas of Calles Jorge Juan, Ponzano and Ibiza. Far from competing with each other, they have managed to create highly-sought after dining areas that attract tourists and residents.

In recent months, we have seen considerable capital injections into these upper-scale groups in the form of large stake purchases by international F&B groups and even venture capital, aiming to grow and, if possible, export their business to other markets.

FashionAlthough the fashion sector recorded a decline

in sales in H1 2018, corresponding to a slowdown in store openings, data from Acotex suggests that this trend seems to have been reversed. The sector appears to gradually recover, most notably brands that require small and medium-sized spaces.

Fashion brands that have found recent success on the high street include Alfaro, Arizona Village, Patch, Scalpers Woman and Intimissimi Uomo, having all opened new premises in Madrid. Meanwhile, Lacoste, Bimba y Lola, Nicoli and Florencia have set up shops in Barcelona.

Telephone Companies As part of their expansion, the Chinese brand

Huawei has recently opened a megastore in the centre of Madrid, at Calle Gran Vía 48, with a total space of 1,100 sq m. Following this inauguration, the company will launch its first flagship store in Barcelona on Plaza Catalunya 9 (a unit acquired by BMO in Q4 2018), with a surface area of 750 sq m.

Xiaomi, another Chinese mobile brand, has successfully expanded into Spain, launching several stores in Madrid and Barcelona. To date, they have opened a total of 17 stores nationwide in both shopping centres and high street locations.

LuxuryBarrio Salamanca is fashion s golden mile in

Madrid, comprised of Calles Serrano and José Ortega y Gasset.

With the recent relocations of high-end brands such as Salvatore Ferragamo, Bottega Veneta and Saint Laurent, the stretch from Don Ramón de la Cruz and José Ortega y Gasset on Calle Serrano has become the location of choice for boutique lines. The future addition of Prada to this stretch, having purchased the premises at Serrano 64, along with the iconic presence of Louis Vuitton s flagship store, will only further strengthen the street s luxurious appeal.

Although a number of prestigious brands located on José Ortega y Gasset have transferred to Calle Serrano, Calle José Ortega y Gasset remains the luxury high street for excellence. It is home to many of the most exclusive high-end brands such as Chanel, Dior and Hermes. Leading brands that have opted for this street as their preferred pitch in Barrio Salamanca include Oliver Peoples, Celine and Chaumet. With the latest lettings and ongoing negotiations, José Ortega y Gasset’s prime stretch (between Serrano and Velázquez) is practically fully let to premium luxury brands.

In Barcelona, Paseo de Gracia is undoubtedly fashion s golden mile within the city. In recent years, top brands such as Fendi, Loro Piana, Kenzo and Christian Louboutin have set up boutiques on this street, with Boggi Milano recently launching their flagship store at number 103.

Madrid and Barcelona’s luxury high streets still offer excellent potential, with lower rents than comparable European cities and a lack of key brands which can be found on high streets across the world. The imminent arrival of new and exclusive luxury hotels, the absence of which has hampered affluent tourism in Spain s frontline cities up until now, will undoubtedly have a positive impact in the luxury market, as this is the case of the Four Seasons Hotel, Hyatt, Mandarin Oriental, Marriott and Pestana.

E-commerce and Digitalisation An analysis of the high street market

would not be complete without taking into



consideration the impact of e-commerce on retail sales.

In 2017 (the latest year with complete annual data), online transactions reached record highs, with a total turnover of €30,406m, accounting for a +26% y-o-y increase. These figures represent approximately 5% of total retail trade in Spain. However, overall figures are still far behind the main European, most noticeably UK and German, and American markets.

This astonishingly rapid growth has exerted pressure on traditional retail formats, which has led major brands to adapt to consumer demand by increasingly integrating new technologies into their premises. Zara, Mango and Bershka paved the way in the fashion sector in Spain, introducing technologies such as augmented reality applications, digital fitting rooms and in-store QR codes, respectively. Perhaps more prominently, McDonald s and Burger King have enjoyed great success with their digital panels for ordering and buying food.

As a side effect, storage space has gained greater importance for mass market retailers, doubling as small in-town logistics hubs which allow them to offer same-day delivery or convenient pick-up service for their online customers. This is a great example of how traditional formats can enhance online sales. In fact, retailers are reporting steep declines in online sales in specific locations following a store closing within the vicinity.

While the traditional brick-and-mortar brands have been enhancing the customer experience through digitalisation, pure players have been moving to gain high street presence. The main

driving factor behind this is the customer s need for an in-store experience, which is sorely lacking in the typical e-commerce model. Hawkers, Dr. Bloom, Food District, Wynot and Black Limba have gone from having an exclusively online presence to opening high street stores, providing customers with an opportunity to try products in person before either buying in store or later ordering online.

This convergence of business models demonstrates retailers´ desire to reap the benefits of both online and offline strategies. Although it can be difficult to accurately quantify, it is important to note the driving effect of “showrooming” and pick-up & return services provided by physical stores increasing online sales.

New Entrants and International Store Openings

Compared to previous years, there have been fewer new entrants into the Spanish retail sector. The lack of premises adapted to the needs of retailers in the main commercial hubs is one possible explanation for this lull in store openings. Nevertheless, there has still been international interest, with notable arrivals in both the Madrid and Barcelona markets.

In Madrid, Barrio Salamanca has recently become home to the first flagship stores of American brands Johnnie Walker and Brandy Melville, as well as French jeweller Chaumet. After gaining presence in Barcelona, two exclusive brands Philipp Plein and Celine have also chosen to set up boutiques in the same district, along with Uniqlo, which is currently undergoing works for their first store in Madrid.

Within Barcelona, Fendi opened their first flagship stores in Spain during the last 18 months. More recently, American brand Anthropologie has also entered the Spanish market, with premises at Paseo de Gracia, 27. Similarly, the Canadian brand Lovisa has recently inaugurated its first high street shop on Portal del Angel.

Two other large players have set their sights on the Madrid retail sector, with Huawei having opened their first megastore and Urban Outfitters looking into space on Calle Gran Via. Meanwhile, in Barcelona, Moncler is expected to inaugurate their first high street shop on Paseo de Gracia.

The commercial hub of Madrid s city centre will undergo remarkable expansion in the coming months, with the ongoing development of Edificio España and the Canalejas Shopping Centre. Positioned to impact the area, these two significant additions to Zona Centro will extend the retail stretch of Calle Gran Vía, adding another luxury retail hub to Madrid’s city centre. The high-end brands that are expected to open in the Canalejas Shopping Centre, as well as the opening of the Four Seasons Hotel in the same complex, will further enhance footfall, investment and tourism within the area.

Despite very high rent in major cities such as London, Paris and New York, these cities are still the first choice for new entrants despite the relatively affordable and stable prices of Barcelona and Madrid. However, one factor expected to positively impact the Madrid retail market is the ongoing developments of luxury hotels. Four Seasons Hotel, Hotel W, Mandarin Hotel and Madrid Edition by Marriott are hoped to lure new high-end clientele to the city’s central shopping districts.

Investment MarketIn 2018, investment volume in the high street

retail sector hit ca. €1,160m, representing a historic increase of 168% y-o-y. The most notable of last year s transactions were the German fund Deka s acquisition of 14 retail units, totalling close to €400m; Corpfin s acquisition of a portfolio from El Corte Inglés, involving two units in Bilbao and Madrid under the sale and leaseback format for €100m; and Generali s purchase of Preciados 9 from CBRE GIP and IBA Capital for €100m. If we were to disregard these three megadeals, the figures would still have reached an impressive €598m, accounting for a 38% y-o-y increase.

However, for the first half of 2019, the high street retail sector reported €266m. This decline in volume transaction can be attributed primarily to the two megadeals signed in H1 2018. Furthermore, while investor appetite remains strong, there is a lack of prime product on the market. Compounding this is a gap between the expectations of buyers and sellers.

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Graph 8: Investment Volume Evolution in HS market


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E-commerce continues to trend upwards, compelling physical stores to adapt to consumer demand by incorporating new technologies

Investors continue to focus on Madrid and Barcelona but are also attracted to touristic cities such as Valencia, Malaga and San Sebastian. An upswing in tourism, combined with improved performance in the retail sector, has drawn not only national but also international investment.

In 2018, institutional investors were the main players in the investment market in terms of acquisitions (73% of total), demonstrating significantly higher activity in the high street retail sector. This was followed by insurance companies (16%) and Socimis (5%). It is important to note that in 2018, the volume of individual transactions above €20m was considerably higher when compared to previous years. However, private investors, who were very dynamic in the retail premises sector with acquisitions below €10m, continue to direct business towards the most commercial streets of the cities where they reside as they are experts in their markets.

When breaking down investment by region, Madrid received the lion s share, with almost 49% of total volume, more than Catalonia, Valencia, Andalusia and the Basque Country combined.

Yields remain stable, with prime yield in both Madrid and Barcelona standing at 3.25%, while in other major Spanish cities the spread in yields can range from 50 to 100 bps. Initial yields are now at all-time lows for both prime high streets and their adjacent commercial areas. With the latest indicators pointing to a continuity of low interest rates, prime yields are expected to remain low, especially for core assets.

Asset City Vendor Purchaser

Don Diego López de haro, 1 Bilbao BBVA Thalus/ Angelo Gordon

Alameda Principal, 17 Málaga Private Mutualidad de la Abogacía

Don Diego López de haro, 4 Bilbao Banco Santander M&G real estate

Plaza de Cataluña, 9 Barcelona Bankia BMO

Serrano, 64 Madrid Bankia Prada

Serrano, 30 Madrid na BMO

Carretas, 6 Madrid na Mutualidad de la Abogacía

Table 3: Main deals – Investment market 2018-2019




Outlook• E-commerce will continue to trend upwards, working in tandem with physical stores in prime areas, but to the detriment of secondary areas.

• The trend to implement cutting-edge digital technologies within high street shops will continue upwards in the coming years.

• The growth enjoyed by the banking sector is forecast to plateau after completing the process of consolidating new flagship branches and closing smaller underperforming offices.

•The food & beverage and supermarket sectors will continue to expand to meet the rising demand of consumers. Investment in these markets is expected to remain strong. •Traditional warehouse retailers will actively seek opportunities for commercial space in the city centre, but are more cautious in their plans for expansion and will not accept paying rent at unreasonable prices. They do not need to be located on the best stretch of the prime retail pitch, but rather in locations closest to the prime commercial hub as prices are more

affordable. They place a higher premium on excellent frontage and parking facilities.

• Consumer attitudes towards low-cost products and services have changed, illustrated by the rising popularity in budget fashion and more affordable gyms and fitness centres. This trend is predicted to continue, with the opening of new premises in the coming months.

• The future openings of Four Seasons Hotel, Hotel W, Mandarin Oriental and Madrid Edition by Marriott are expected to boost the luxury retail market in central Madrid by attracting a larger international consumer base, especially tourists with high purchasing power. This will generate a luxury hub in the city centre traditionally focused on mass market. The French high-end fashion brand Hermes has secured commercial space in the Galeria Canalejas, where the Four Seasons Hotel is going to be located.

•The future opening of Primark in the former premises of C&A on Conde de Peñalver and Uniqlo on Goya’s Jardin de Serrano will undoubtedly create a strong fashion axis along

Calle Goya, with other important retailers Ikea and Primor having recently secured space on this street.

• Investors continue to seek prime opportunities despite low yields, albeit only for the right assets. There is very strong demand for value-add and core+ opportunities, however pricing and planning uncertainty in some cases can frustrate return expectations. In this scenario, investors are settling for manage-to-core strategies in order to secure transactions.

• Secondary cities (tier 2 and tier 3) are a great option for investors to find core deals at more attractive returns, while maintaining great levels of security and liquidity.

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Pelayo BarrosoNational Director+34 91 319 13 [email protected]

Gema de la FuenteNational Director+34 91 319 13 [email protected]

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Luis Espadas Executive Director+34 91 319 13 [email protected]

David Barragán National Director High Street+34 91 319 13 [email protected]

Andrés Martín Director High Street+34 91 319 13 [email protected]

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