You can walk along any road in Marbella, Puerto Banus, San Pedro or any other town on the Costa del Sol, and see commercial units with paper covered windows or “Cerrado” scrawled on the front. Some of the coasts “polígonos” (industrial estates) are increasingly baron with many vacant buildings falling into disrepair.
This is happening for two reasons: lack of investment in new business and falling income for existing businesses.
According to data released by Savills Plc, a mere 1.25billion Euros of commercial property was sold in the first 9 months of 2011. Although that sounds like a lot it is in fact a huge 52% less than the same period in 2010. This is based on sales of offices, shopping malls, hotels, warehouses and retail outlets. The fall comes despite a 3.2% drop in average rental costs. In 2008 office rental prices peaked at 41€ per square meter, 33% higher than the current average or 27.5€ per square meter.
Commercial investment has dropped to it’s lowest level since 2001 due to the economic crisis spreading throughout Europe. Investors are staying away from Spain until the government has created a clear plan to deal with the growing sovereign debt problems. This may now take longer than expected as the current governing party, Jose Luis Zapatero’s Socialist party is not expected to remain in power following elections due in November. Analysts predict the Popular Party are likely to win and if this is the case the new government will have to start the whole process again.
Tighter lending controls have also been a factor in keeping the investors away. Banks have made it harder and more expensive to get financing following a large rise in the number of “bad loans”. During the boom of the late 90’s and early noughties it became increasingly easy to get finance for your property with interest only and 100% finance deals readily available. Many of those loans have defaulted resulting in the banks costs increasing. Many banks have a huge number of repossessed properties on their books.
Many planned investments and new developments have been postponed or cancelled due to a lack of financing and continuing uncertainty surrounding Spain’s economic outlook.
A poll of 600 real estate investors conducted by CBRE Group Inc. revealed that 73 percent thought the outlook for Spanish real estate would improve in 18 months. Patricio Palomar, head of research at CBRE in Spain said that was not good news adding “They are saying they see no improvement in the short term.”