Abante: "There is a clear real estate investment opportunity in Spain"

Abante is confident in the real estate sector and predicts a normalisation of asset valuations and a general increase in rental yields. 

The company, which specialises in financial management and advice, explains in a report that "there is a clear investment opportunity in the Spanish real estate market, in a context of growth in the main cities and where we are beginning to see the correction following the interest rate hikes carried out to combat rising inflation".

According to Abante's real estate advisory team, we are on the verge of returning to normal in terms of property valuations, which will boost rental yields across the board and provide investment opportunities. 

The document stresses that the real estate market is adjusting to the new interest rates, which will cause "the return of common sense in valuations", after several years in which they have corrected in price, except in the residential market. 

"For the same prime office building on Paseo de la Castellana (Madrid), which in 2019 was trading at 3.25% yield, today a potential buyer of that property is demanding more: 4.5%. Even though the rent has risen by updating the inflation in bills (15%), the price has fallen by 17%, which is the effect of capitalising the rent at 4.5% vs. 3.25%. Something similar has happened in commercial and logistics, albeit less so in the latter. In general, rent has not increased to compensate for the effect of the increase in required profitability and, in some segments, has even fallen in real terms (making this effect more intense). The residential market in cities with population growth, however, has achieved rental growth that has compensated for the increase in required returns," he says.

According to Abante, the scenario that is now opening up, following the first interest rate cut by the European Central Bank (ECB) since 2016, and the forecast of more cuts in the coming months, depicts "an economy with weak growth that has successfully managed to reduce inflation without going into recession, but with a new rate scenario that allows a return to historical average returns on rental investment, moving away from the ridiculously low returns of 2019 to 2022. And, therefore, offering value to those who have the capacity to buy.

He adds that "the increase in rental yields for the different types of real estate assets represents returning to normality. And, therefore, an investment opportunity. Buying in prime locations, both commercial premises and offices with yields of 3% to 3.5% was an anomaly in historical terms and an obvious symptom of a dysfunctional market. We have even seen investment operations in logistics warehouses with yields of less than 4%...".

All eyes on Madrid and the Mediterranean

However, this commitment to the real estate sector is not generalised. In fact, Abante stresses the importance of being selective with assets and focusing on cities with population growth, especially Madrid and the Mediterranean arc.

"In Spain, demographics and population growth are favourable to investment in the main provincial capitals. Within these, first Madrid and then the cities of the Mediterranean arc are attracting talent and capital, at a considerable distance from the rest. Because they are the cities where the greatest economic growth is generated and, therefore, where there are more opportunities for professional development. But they are also where people find the most opportunities to have fun in their leisure time and to raise a family. Therefore, cities with population growth are most attractive to invest in real estate, especially now that the new, higher yields offer value again," the study details. 

One example of the opportunities that Abante is seeing in the real estate market is the return on investments by Vitruvio, the real estate investment trust managed by the company. This listed real estate investment vehicle, headed by Joaquín López-Chicheri, has resumed its growth through acquisitions after a few years in which valuations were not attractive or the financing structure for acquisitions was not attractive. In addition, it is once again analysing operations involving the contribution of properties belonging to family companies, the market niche in which it specialises.

In recent months, for example, the trust has reached an agreement with the 'proptech' Clikalia to invest in rental housing in the markets with the highest demand, to create a portfolio of up to 1,000 units in the coming years. 

Abante also has exposure to the real estate sector through a sector-specific investment fund managed by José Ramón Iturriaga, which was launched in mid-2023. Called Abante Sector Inmobiliario, FI, this investment vehicle focuses on Spanish and European listed companies. These include the Spanish real estate trusts Merlin Properties, Colonial, Grupo Lar, Árima Real Estat and Inversa Prime; as well as the German companies Vonovia and TAG Immobilien; the French companies Gecina, Unibail-Rodamco-Westfield (URW) and Klépierre; and the British company Big Yellow Group. Abante's fund also invests in property developers such as Aedas Homes, Metrovacesa, Neinor Homes and Inmobiliaria del Sur (Insur); hotel chains such as Meliá and other real estate services companies such as Icade. 

According to Iturriaga, the fund is already offering returns of 20%, a sign that "the market is starting to take notice and that, after the discounts, listed real estate is back on investors' radar".