Spanish retailers have embarked on aggressive pricing strategies, which have contributed to a stabilisation in rents, according to Savills. The international real estate advisor’s latest report cites findings from the Spanish Retail Confederation stating that retailers have adopted 30-70% discounts in product pricing or assumed the cost of the July 2010 VAT increase, in order to encourage consumer spending. The result, Savills says, is seen through encouraging footfall, vacancy rate and turnover figures, and Savills refers to Business Association of Clothes Sales figures which state that Catalonia, Madrid and Andalucia lead the way in terms of turnover.

The international real estate advisor reports that primary rents for shopping centres are in the region of €90 sq m/month and retail parks €16 sq m/month – consistent with 2009 levels. International retailers have entered the market including Hollister and Forever 21 who have been attracted to prime centre La Maquinista, in Barcelona. Household brands Bricor, Worten and Darty as well as different sector brands including Decathlon, Merkal and Feu Vert have all been drawn to major schemes. The report also suggests that Spain’s retail centres present opportunities at reasonably priced rents and this has been a draw for those retailers who have entered the market this year.

In terms of rental discounts, Savills finds these have reduced however some large chains or anchor tenants, particularly local operators, have been able to benefit from reductions. The case for secondary rents, it says, is very different.  High vacancy rates continue to negatively affect rental prices as an imbalance between supply and demand continues. Consolidated parks average €11 sq m/month and secondary parks stand at between €9 sq m/month and €11 sq m month.

Danny Kinnoch of Savills capital markets team in Spain, says: “Generally speaking the market has hardly changed in terms of spending statistics and we are strongly encouraged by the more stable rental prices.  Some retailers, including international brand are taking advantage of the market and the focus is clearly on prime centres.”

The investment market also shows signs of revival with a 40% increase on signed transactions between January and October 2010, compared to the previous year. The total sales figure stands at €540 million, 4% higher than the same time period in 2009. The type of investment is however the differentiating factor, 42% of the investment volume is concentrated in supermarket and hypermarket sale & lease back transactions rather than more typical shopping centre or retail park investment. Larger portfolio transactions have seen international players buying from Spanish sellers, with the United States, Netherlands and UK accounting for 89% of the total amount invested.

Danny Kinnoch continues: “The strong interest from buyers has provoked a downward yield shift but this is limited to prime markets. A huge pricing mismatch between buyer and seller expectations continues to exist for more secondary product. It is however encouraging to see opportunistic investors considering these assets with the obtainment of financing on attractive terms being the deciding factor.”

In prime shopping centres gross initial yields stand at between 6.75% and 7%. In good quality consolidated centres, yields are between 7%-7.5%. Prime retail parks are at a similar level, between 7% and 7.25%, whilst consolidated parks between 7.5% and 8%.