The real estate sector is going through a period of changes and not all of them are easy to interpret. The skyrocketing inflation affects the profitability of investors, who today find a more favorable scenario in fixed income. On the other hand, the consequent increase in interest rates further complicates access to home ownership and even jeopardizes the payment of mortgages already granted. A difficulty that also affects the rental market and that generates a real social problem.
On the other hand, new opportunities arise, investments related to the hotel sector and new housing models. In the midst of this complex scenario, the sector claims to be heard by the Administration from which it demands measures, alternatives and encourage the construction of social housing.
Diálogos La Vanguardia met this week Germán Flores, general manager of La Llave de Oro; Albert Gavaldà , head of Singular Bank in Catalonia; Bruno Hallé, Head of Hospitality Spain Cushman
Despite everything, private banking experts point out that investors continue to bet on real estate assets as a way of diversifying their assets. “From our point of view, investment in real estate assets is not in competition with investment in financial assets. What’s more, both models must coexist, which is why it is vitally important to have good financial planning and wealth advice in order to help our clients define and achieve their vital objectives in accordance with their expectations and needs. No two clients are the same, each client is uniqueâ€, assured Gavaldà .
Puigdevall indicated that the rise in interest rates decreases the volume of operations. “This year there will be around 20% less sales than in 2022,” he estimated. While the luxury housing market will continue to grow, citizens will find themselves with a price scenario that will not fall in all cases. For this expert, “in the most stressed areas, the price will be maintained and in those with less demand, a slight decrease is expected.”
In Scholtes’ opinion, for it to be in equilibrium “the average price would need to fall by around 5% and, apart from the problem of supply and demand, it must be taken into account that in real terms housing has already become cheaper due to to inflationâ€. With nominal household income recovering as wages rise this year and next, Singular Bank’s chief strategist points to two possible outcomes: “A fall in house prices of around 5 % average to recover from 2024; or two or three years of stagnant prices and that accessibility relaxes as a result of the increase in wagesâ€.
How does this situation affect investors? “In offices, for example, profitability will rise by about one point to 4.25%-4.5% Barcelona and just over 4% in Madrid, but Barcelona has a problem at @22, where more than 22 % of the available space is unoccupied, and that is going to put a ceiling on rents,†Scholtes explained.
On the other hand, teleworking is not affecting office prices as much as initially thought. Germán Flores, general director of La Llave de Oro, explained that “what has happened is that the differences between prices in the center of the cities, where the most representative spaces of the companies are located, and the periphery in the that there is less demand for spaceâ€. However, many companies are taking advantage to expand the average space per employee, which in Spain is 4 square meters and in northern Europe reaches 12.
In the case of stores and shopping centers, the price adjustment is in the order of 30%, “although at least two-thirds of this drop has already been applied to current prices,” according to Scholtes. In this case, the pandemic was responsible for unleashing this fall, which has later been endorsed by “the consolidation of a series of changes in consumer habits that favor electronic commerce over the traditional model.” In fact, shopping centers are evolving into a leisure and entertainment venue.
The behavior of the real estate sector linked to the hotel business deserves a special mention. Within the framework of a complex global situation, “we are seeing that investors continue to bet on Spain, Italy, Greece, Portugal and, in general, on the Mediterranean area”, Bruno Hallé stated. This expert assured that “it seems that investors have rediscovered the holiday hotel business.” The consequence is that the purchase of assets grows, although buyers demand a drop in prices as a result of the rate hike.
However, reality insists on going the other way. “Since March 2020 we have been waiting for hotel real estate prices to drop, but they have not,†Hallé clarified. The reason, beyond the interest in the market to invest in this sector, is due to the good behavior of tourism that the Easter 2023 campaign has been in charge of confirming. Given the prospect of a summer that could be extraordinary, “the hotelier is not willing to sell cheap.”
Investor targets in this sector “are assets that they can reposition.” Hallé referred to “3-star establishments that can become 4 or 5 stars and with volume on the beachfront.” On the other hand, urban hotels also generate interest, especially those located in Barcelona, ​​Madrid, Malaga, Seville, San Sebastián and Valencia. In this sense, he highlighted that “the covid caused some hotels in Barcelona to go on sale, but always at high prices.”
The tensions in the real estate market are concentrated in housing and, in this case, the rise in interest rates is creating a serious problem for citizens both in terms of access and when dealing with the rise in mortgage payments that can reach 60% increase. The experts demand that the Administration make a firm commitment to the creation of a permanent stock of social housing. In this sense, they complain that many of the current measures that seek to promote access to housing have shown their inefficiency and call for more dialogue.
Flores points out that “we are seeing how in the first quarter sales of new-build homes, in our field of action, which is Barcelona and Mallorca, have been higher than the same period last year”. There is demand for this type of promotion, but the offer is scarce “and the administrations should be concerned about this fact and give incentives to change the situation.” The person in charge of La Llave de Oro assured that “in the last five years in Catalonia between 12,000 and 15,000 new construction homes have been built per year, when it is estimated that the needs are between 25,000 and 30,000”. For Flores, “the limitations have only served to make part of the lawsuit withdraw and that stresses the rent.”
For Puigdevall “the reality is that the offer must be increased because otherwise it will not be possible to provide coverage to all citizens looking for a home”. If the demand is high and the supply is low, it is difficult for prices to fall. On the islands, this situation reaches dramatic levels. Bruno Hallé assured that “the accommodation of the employees of the Balearic Islands hotels is so critical in the Balearic Islands that there are companies that consider giving up some floors of their hotels to their workers and not selling them”.
Another serious problem is the access of young people to their first home, even with stable jobs. Something that the rise in interest rates has been responsible for turning into an impossible mission. The general director of the National Association of Real Estate Agents considered that “officially protected housing must have this task, as it happens in other countries around us”. For Puigdevall “once you have entered the wheel of housing, the situation is simplified because then it is easier to make the leap to a second home.” Generating that official housing stock and establishing rules that keep it out of speculation is key. The participants in the session ask for more flexibility to change the situation, “because the country needs it and what we cannot do is turn our backs and those who do not have a home can manage,” said Flores.
Another aspect highlighted by the experts is that there is a change in the perception of citizens about the type of housing we need at every moment of our lives. The usual feeling was that “our home would serve us for a lifetime and the reality is that our needs are changing,” Puigdevall clarified. For an aging society like the Spanish one, this concept opens the door to solutions such as shared flats or conditioning commercial premises such as street-level homes that facilitate mobility.
The model in the hotel business is also changing. “The trend that we are seeing is that the owner of the property is willing to assume a little more risk and therefore evolves from the fixed rental contract to the variable rental, management or franchise contractâ€, explains Hallé. It assumes a greater risk, but well managed it provides you with very interesting variables. Despite the good performance of the sector, the expert also highlighted that “the increase in costs such as those derived from energy and accumulated debts means that some family hotels do not take over and choose to sell.” A situation that generates opportunities for investors. “In 2022 we will reach 3,000 million euros in hotel transactions and this year we will move in similar figures”, summarized the consultant.
In Scholtes’ opinion, the situation of fundamental structural transformations and the rise in interest rates “is going to generate big winners and losers” among investors in the real estate market. In this context, “the professional operator who knows how to play with these changes has very attractive opportunities.”
