Miguel Pereda (Madrid, 1963) has spent several decades listening to the real estate market and its cycles. He does so as president of the Lar real estate group and also as vice president of the Socimi Lar, the largest in Spain in shopping centers, with 14 assets valued at close to 1,500 million euros.
Is the real estate market in trouble?
We have seen in 2022 and at the beginning of 2023 a fairly large dissociation. Fundamentals are good: housing is selling and renting well, and shopping centers are performing extraordinarily. However, macro changes cause the sector to slow down and a large part of capital to reconsider its assumptions.
Since when does that happen?
Since the Ukrainian war. We were hoping that, after the covid and with the operational part normalized, there would be a clearer recovery, which has not occurred.
How are the different real estate categories now?
In housing, there is a growing need in all areas. The supply is not enough and prices are going up. More people are entering shopping malls than before the pandemic. In offices, experts are optimistic regarding occupancy and sales levels in the most core locations. And in logistics, the appetite is frankly healthy. They are parameters to be optimistic.
What effects do inflation and rate hikes have?
Mainly two. The first is that the purchasing power of some customers suffers. The fee you can pay is lower and that makes more people move from buying to renting. The second refers to the investor, for whom the doubts have to do with how the financial cost affects the leveraged assets and what the value of the assets will be in terms of investment rates of return in the future. That causes some uncertainty about asset values ??and the market slows down.
How does this situation affect the Socimi Lar?
We have the first debt maturity in 2026 and the financial cost is fixed at 1.8%. The financing risk and financial cost are very low.
Have shopping centers suffered a lot with electronic commerce?
E-commerce peaked in the pandemic and has since leveled off. It may grow more in the future, although it affects each category differently. It is not the same to sell fish as calculators. Who hurts more? To the weaker centers. Those centers in which the only reason to choose is to buy suffer more with electronic commerce, which is a clear competition for them.
Have you already swept everything you had to sweep?
I don’t think it’s a threat to the sector. It is a threat to some weak malls, but today e-commerce has become a plugin. Stores have to learn to live with a double channel, physical and digital.
During the pandemic, have you ever thought the end of shopping malls had come?
Never. We did think that what the pandemic was going to do was accelerate behaviors that were going to happen in any case.
How are the commercial premises now in terms of occupation and rents?
In visits we are practically the same as the pre-pandemic levels, while in sales we are substantially above. In occupancy, we are at 96%. The merchants also pay rents. The level of defaults is very low. In short, the data is very positive.
Why do shopping malls fail?
How a shopping center competes and fits in with local commerce and the way of life in cities is key. A shopping center in the south of Spain works in a different way from the one in the north. If it falls below a certain level, recovery is very complicated.
And what are the keys to success? That there is a Zara?
Partly yes. First, that it is in a suitable place and is dimensioned in the appropriate way. And then who’s inside. If it is not well located and dimensioned, the operator does not want to go. Planning the commercial mix is ??key. We make a ranking about what area is occupied by top-level international or national chains. That makes the center have very different weaknesses.
Are more centers going to be built or are they enough?
I think there are enough and that we don’t have a capacity problem. Some may close and others open, but no more is needed.
How is Lar’s strategy?
First, we have a portfolio of winning assets, which is 14. We don’t have losing centers. Second, we have a very well-armed liability, with long and cheap green bond debt. Third, we have an extraordinary management platform. We are going to exploit the assets in the best way. And also do selective rotation to replicate the model in other locations.
Is limiting rental income as the Government has done a good solution?
Limiting income in general for me is a very serious mistake. I think it is serious, that it goes against what is the very essence of what a market economy is. There are groups that require special aid that must be attended to, but the measure will probably have the opposite effects to those desired. I can’t be more against her.
What is your recipe for solving the housing problem?
It has gone or is going to a restrictive model, when the only recipe proven worldwide to improve the quality and price of the housing solution is flexibility and is to increase the offer. It would be better for there to be legal certainty, for there to be more people who dedicate their activity and their capital to generating this type of product. That is what generates competition in quality and price.
