Today, shopping centers have become tools for urban planning in both the outskirts and city centers. Spain and Portugal are currently undergoing this period of urban reorganization. In Spain alone, 25 new shopping centers were built in the first eight months of 2003. Portugal, on the other hand, is a market unknown to many investors, but with great potential.
According to the latest study by the international real estate consultancy Jones Lang LaSalle, the figures observed during the first two quarters of 2003 suggest that this year will be even more prolific than the previous one in the opening of commercial space in Spain.
In the first two quarters of 2003 alone, 25 new stores opened and seven expanded, representing increases of 79% and 75% respectively compared to the same period of the previous year. The regions with the most openings during this period were Madrid, the Valencian Community, the Canary Islands, Andalusia, and La Rioja, which saw a significant increase in their retail density.
Among the openings in Spain in 2003, Xanadú, which opened last May, stands out as a landmark, along with El Muelle in Las Palmas, Parque Rioja in Logroño, and Plaza Mar 2 in Alicante. Regarding future openings, the outlook remains very optimistic, both in terms of the number of centers and expected retail space, with 140 projects considered highly viable through 2007. Based on their typology, there is a clear focus on retail parks, which encompass all types of commercial and leisure areas, but with a particular emphasis on medium-sized stores, alongside large and regional centers. Therefore, large retail complexes will continue to proliferate.
The Jones Lang LaSalle report highlights that rents have increased in recent months in Madrid's prime shopping centers, due to the current marketing of landmark complexes both in the city center and in other areas, such as Príncipe Pío or Plaza Norte 2. In Barcelona, rents have remained stable for prime shopping centers, while, as in Madrid, there is some difficulty in maintaining them in secondary centers.
Prime retail rents, meanwhile, have seen an average increase of approximately 10% in Madrid, while remaining stable in Barcelona. Compared to other European markets, both Madrid and Barcelona are below the average. Therefore, it is reasonable to assume that rents will continue to rise in the coming periods.
Portugal, the great unknown
Despite the potential for growth in construction in the neighboring country and the potential for price and profitability growth in markets such as shopping centers, Portugal remains largely unknown to Spanish investors.
The projects currently being managed by Spanish companies operating in Portugal extend to the office and retail sectors, in line with the higher profitability prospects offered by the Portuguese markets. Because it is a smaller market, further restricted by its new Tenancy Law (which allows tenants to leave with nine days' notice), investors demand higher returns, around 77,25%, explains Marcus Lemli, Head of Investment at Jones Lang LaSalle.
The Lisbon office market comprises 2,5 million square meters, half the size of Barcelona's and a third of Madrid's. Business potential has intensified over the past year with the arrival of international investors, who now compete with Portuguese real estate funds. This interest stems from Portugal's accession to the EU, attractive returns, the availability of new office space, new legislation affecting rentals, and the growing presence of multinational corporations, according to Healey & Baker. CB Richard Ellis's investment return outlook for offices and retail projects forecasts a 7% return for both markets.
The vacancy rate is currently at 1% and the lack of quality office space has become a serious problem, which is also being addressed, as in Spain, by growth in areas traditionally far from the business district.
Mutual investments
Some Spanish real estate companies have indeed chosen to include Portugal in their Iberian market as part of their business strategy. This is the case of Metovacesa, which opened the Fontes Picoas shopping center in the capital in November 1998.
In Porto, on the other hand, there is also a project to promote some 52.000 square meters of land marketed by the Spanish consultancy American Appraisal, located in the Nova Centralidade of the city and owned by the Portuguese Government.
Investments are also being made in the opposite direction. The Portuguese company Sonae Imobiliária is betting on Spain. A few months ago, it announced the creation of the Sierra Fund, a real estate investment fund with €1.080 billion of its own capital. Among its objectives is continued growth, especially through new shopping center developments in Spain. "The Spanish market is important both in size and because of its shared characteristics with Portugal," explains Álvaro Portela, the company's CEO. "This makes it much easier for us to leverage our experience," he adds. In addition to Spain, Sonae Imobiliária plans to open centers in Portugal, Germany, Greece, Italy, and Austria. Its sole activity is the development, investment, and management of shopping and leisure centers. In fact, they have reduced all activities unrelated to shopping centers.
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