Post on 20-Jun-2020
savills.com
Southern Europe Investment Briefing
Eri Mitsostergiou - European Research Director
September 2016
Agenda
Southern European (SE)
markets overview
Economy
CRE Investment activity
Sectors
Players
Opportunities and risks
Spain
Italy
Greece
Portugal
Economy – Spain stands out
Strongest growth in Spain despite political
uncertainty – improving labour market and
consumer sentiment
Weak growth in Italy due to political risk
and fragile banking sector
Austerity prolongs recession in Greece
Slow growth and consumption in Portugal
Focus Economics
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Gre
ece
Italy
Fin
land
Port
ugal
Belg
ium
Fra
nce
Austr
iaN
eth
erlands
Germ
any
Esto
nia
Slo
venia
Cypru
sLatv
iaLithuania
Spain
Slo
vakia
Luxem
bourg
Malta
Irela
nd
GDP annual variation % 2016
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Gre
ece
Belg
ium
Fin
land
Italy
Austr
ia
Neth
erlands
Slo
venia
Fra
nce
Cypru
s
Germ
any
Port
ugal
Luxem
bourg
Slo
vakia
Spain
Latv
ia
Irela
nd
Esto
nia
Malta
Lithuania
Consumption annual % variation 2016
SE CRE investment activity - holds good
Generally correlated with rest of Europe
Investors avoided PIGS after the GFC
But CRE investment in SE picked up fast
since 2013
In 2015 was almost €18bn up 27% yoy
In H1 2016 was almost €7bn and expected
to match last year’s level
Savills
-
50,000
100,000
150,000
200,000
250,000
-
5,000
10,000
15,000
20,000
25,000
€m
illio
n
S Europe investment vs Total
SE H1 SE H2 Total EU15
27% -2%
18% -18%
Spain is the largest market
Spain is the largest market
In H1 16 activity was 20%
above the LTA in Spain and
40% in Italy
However in the European
context, SE still accounts for
only 7% of the total activity
Savills
€0.5
€6.8
€2.4
€8.3
S Europe investment by country 2015
Greece Italy Portugal Spain
4% 6% 6% 3% 6% 6% 6% 6% 6% 7%
86% 75% 65% 73% 71% 69% 74% 72% 74% 65%
10% 19% 29% 24% 23% 26% 20% 22% 21% 27%
0%
20%
40%
60%
80%
100%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Share of S Europe commercial investment
S Europe Core Europe Rest of Europe
Higher allocations in retail driven by Xborder players
Prime regional shopping
centres and prime high
street units in strong
demand (40% yoy in IT)
Logistics is rising (34% yoy
in ES)
Prime offices in the capitals
always in demand but hard
to find
Xborder investors dominate
the scene directly or through
REITs in Spain (Socimi).
Importance of national
investors in Italy is rising
Savills
49%47%
Grand Total
Domestic Investment %
Cross border Investment %
30%
66%
S Europe
46% 46%29%
22% 26%43%
11% 6% 15%20% 22% 13%
0%
20%
40%
60%
80%
100%
EU Italy Spain
Investment by sector 2016
Offices Retail Industrial Other
EU and US players dominate, slowdown from Asia/ME
EU players account for 80%
of the activity in Italy, US 4%
and ME 10%
US money leads the activity
in Spain, drop from ME/Asia
Demand is there for the right
type of product – lack of
supply
Savills
42%
31%
10%
10%
7%
SE investment by investor origin 2015
EU US AsiaPac Middle Eastern Other/Unknown
56%30%
3% 4%7%
SE investment by investor origin 2016
EU US AsiaPac Middle Eastern Other/Unknown
Why SE? Economic recovery
Bail outs, austerity and reforms started paying
off, slowdown of recession in 2013 return to positive
growth in 2014
Significant reduction of country risk reflected in low
bond yields
Savills
-10
-8
-6
-4
-2
0
2
4
6
8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
GDP % annual variation
Greece Italy Portugal Spain
0
5
10
15
20
25
30
35
40
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
10-year bond yield
Greece Italy Portugal Spain
Why SE? Attractive yield gap
Core vs periphery yield gap widened
dramatically by 2012 to over 200 bps
compared to a 114 LTA. Back to LTA
now.
Positive yield gap with previous peak
yield compression prospects.
Savills
0
50
100
150
200
250
300
06 Q2
06 Q4
07 Q2
07 Q4
08 Q2
08 Q4
09 Q2
09 Q4
10 Q2
10 Q4
11 Q2
11 Q4
12 Q2
12 Q4
13 Q2
13 Q4
14 Q2
14 Q4
15 Q2
15 Q4
16 Q2
Periphery vs Core yields
Core vs Periphery SC yield gap Core vs Periphery CBD office yield gap
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
01 Q1
01 Q4
02 Q3
03 Q2
04 Q1
04 Q4
05 Q3
06 Q2
07 Q1
07 Q4
08 Q3
09 Q2
10 Q1
10 Q4
11 Q3
12 Q2
13 Q1
13 Q4
14 Q3
15 Q2
16 Q1
Prime CBD office yields
Athens Barcelona Lisbon Madrid Milan
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
IPD/MSCI Total return
Italy Spain Germany France
Why SE? Attractive returns
S European prime yields still more
attractive compared to core
Despite the rapid yield compression
yield differential of prime assets with
risk-free rate (10y bonds) remains
attractive
Yield gap with previous peak mostly
closed. Yields to stabilise this year.
Savills
Risks – Slow economic recovery
Weak economic growth
High youth unemployment
Ageing population
KPMG
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
GDP % annual variation
Greece Italy Portugal Spain
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Malta
Austr
ia
Germ
any
Esto
nia
Neth
erlands
Luxem
bourg
Irela
nd
Belg
ium
Lithuania
Slo
venia
Fin
land
Latv
ia
Fra
nce
Slo
vakia
Italy
Port
ugal
Cypru
s
Spain
Gre
ece
Unemployment % active population 2016
Risks – The burden of NPLs on banks
Spain the only country where NPL ratio is
down, first to create bad bank – SAREB
New institutional framework in Greece
attracts demand from international loan
management industry
In Italy Atlante 2 private equity fund set up
to buy exclusively NPL’s. The recovery of
the real estate market will boost NPL
volumes in Italy.
Three of Italy’s largest
banks, UniCredit, Intesa Sanpaolo, and
MPS, have established internal bad loan
divisions to house non-core assets and
have set out deleveraging
strategies, which include NPL sales
KPMG
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Greece Italy Portugal Spain
NPL ratios
2013 2015
Risks – Politics
Savills
Outlook / Opportunities - Retail
Consumer spending growth –
highest in ES, positive in PT and
IT, slow in GR
Retail parks – evolution of the
concept – redevelopment
opportunities, rental growth
prospects
Shopping centres - Undersupplied
regions – new/re developments
ES, IT, PT, GR
High streets – secondary cities –
strong tourist destinations in IT, ES
(Venice, Florence, Bologna, Turin), 8
0% yoy rise
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Greece Italy Portugal Spain Average Europe
Consumption annual variation
2016 2017 2018
Outlook / Opportunities - Offices
Improving fundamentals – rising take
up, low supply, falling vacancies
30% yoy rise in Madrid
Good rental growth potential (Madrid
and Barcelona top performers)
4% yoy rental growth in Madrid
30-40% below peak
Refurbishments in CBD
-2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Warsaw
Moscow
Oslo
Zurich
Athens
Prague
Helsinki
Brussels
Rome
Vienna
Copenhagen
Luxembourg
Lyon
Amsterdam
Budapest
Lisbon
Milan
Paris
Frankfurt
Hamburg
London
Munich
Berlin
Stockholm
Dublin
Barcelona
Madrid
average pa
Axi
s Ti
tle
Prime office rental growth 2016-2018
Outlook / Opportunities - Other
Tourism
Hotels and second homes in
tourist destinations (ES, GR)
Logistics
Ecommerce creates new
opportunities in the sector
In H1 16 34% rise yoy in Spain
(€450m), 80% in Italy (€200m)
Privatisation of public assets
European Travel Commission
0
1
2
3
4
5
6
7
8
2014 2015 2016 2017 2018
Tourist numbers growth
Europe Northern Europe
Southern Med Europe Western Europe
Conclusions
Economic recovery in SE steady but slow. Spain outperforms
More reforms needed to drive economic growth and reduce public debt. Politics pivotal to
economic recovery
Measures to speed up the deleveraging of the banking sector, improving investor
sentiment
CRE investment is strong driven by Xborder investors and retail
Most of yield compression is done, spread with bonds remains attractive
Opportunities through asset management and rental growth
offices and retail parks,
refurbishments/redevelopment of offices and shopping centres,
ecommerce/logistics synergies,
high street in tourist destinations,
tourism facilities
Thank you!