According to the Forcadell 1S 2017 retail market report, the demand for commercial premises for sale and rent in Barcelona has increased significantly this year, 27% and 13% respectively.The boost of the sector, due to an increase in local and foreign consumption and interest of large operators to obtain the best locations predicts retail will close 2017 with outstanding figures.
While the flagship format has become essential for large firms, there is almost no availability of large spaces in the first Lines. On their behalf, supply for commercial premises on the 2nd and 3rd Lines has also dropped due to the growing activity of the sector.
The Forcadell retail market report points out the sector is following a very positive evolution throughout this semester, increasing its tendency towards stability and consolidation. Rent demand has risen in quality as well as in volume, registering a positive 27% six months increase. This growth is due to factors such as increase in household consumption or improvement of the employment market. In fact, the June Consumer Confidence Index (CCI) which stood at 105, 8 points verified this improvement (+9,5 y/y increase), mainly due to an improved market assessment by consumers. Regarding the luxury sector, Barcelona continues in its position as one of the main favourite destinations by consumers with high purchasing power, together with New York, Paris, Venice or Rome. Prime axes like Paseo de Gràcia or Portal de L’Angel concentrate the exclusive supply of the best firms, national and international, in a city that attracts tourism for its weather, avant-garde spirit and location.
Furthermore, and according to sources from the consulting firm, flagship stores have established themselves as an essential promotion tool for brands, whose main objective is to serve as showrooms where the customer experience is essential. Precisely, it has been the flagship format which has allowed to unite and solidify the concepts of traditional consumption with e-commerce resulting in a final integrated experience. In terms of space demand, those up to 200sqm are still upon the most requested in the 1st and 2nd Lines, while in the 3rd and 4th they comprise a diversified range of up to 500 sqm. Given the great vitality of the local commerce sector at large, firms keep opting to open stores beyond prime locations and in shopping centres promoting at the same time commercial activity in neighbourhood. By sectors, this semester Restaurants and Bars has been the most demanded premises, registering a positive growth pace. The large Fashion operators are the ones to who have introduced the flagship format, adding departments of Household goods and Food in their stores. Gyms, on their behalf, have gone from large spaces to occupying much smaller premises. Buyer demand has also registered positive statistics in 1S 2017, standing at a 13% six month increase. Investors, including large volume investors as well as Family Offices and end costumers represent 46, 15% of the demand, while the service sector has comprised 21, 54% and Hospitality 15, 38%.
Data from Forcadell confirms there is still a low supply of commercial premises to rent, mainly in the 1st and 2nd Lines. On one hand, the high demand of international operators who expect to enter the Spanish market through the catalan capital, and on the other hand, the demand of national firms and small local shopkeepers which have generated considerable levels of occupancy make it a demanding process finding spaces in prime streets, secondary streets or even in adjacent roads with high footfall. The positive scenario currently experienced by the retail sector has been rewarding to all commercial Lines, increasing premise occupancy and lowering tenant rotation. In addition, low premise availability has resulted in a reactivation of most of the lease transfers in all commercial Lines. Sales for Small Businesses, according to data from the June 2017 Office for National Statistics (INE) saw a 1,2% y/y increase in Catalonia, while occupancy rose an 1,6%.
Supply for commercial space to sale is till scarce throughout the first semester despite the upturn of investor and end consumer sentiment. Yields have compressed in many cases even with an increase in rent prices. This situation reflects the fact that not all buying options are interesting opportunities, as FORCADELL experts pointed out. Sales of commercial premises have closed with higher final prices than anticipated, a common occurrence since in 2016, given the surge in store front retail premises. Owners of commercial premises continue monitoring market evolution awaiting interesting opportunities to sell their assets.
The Forcadell report of the 1st semester highlights the positive progress of the sector together with the lack of space that keeps driving the rents upwards in all the Lines. While the zone with the highest rent increase has been the 1st Line Very Busy (14,81 y/y increase), in the 2nd and 3rd Lines increases have also been very significant. Portal de L’Angel still heads the list as the spanish commercial street with the highest rents standing at €280/sqm/month followed by the Preciados street in Madrid, €275/sqm/month and Passeig de Gràcia in Barcelona with €240/sqm/month.
Street front commercial premises have also seen an obvious price surge, compared to that registered in past semesters. The growth tendency of the sector has attracted larger buyer/investor interest throughout this 2017.1st Very Busy Line (27, 24 y/y increase) is the zone with the greatest price increase, followed by 2nd Line and 1st High Street Line. Consumption drive and the positive outlook for the sector facing next semester forecast, according to FORCADELL experts, that price evolution will continue, although moderately, on its rising trend.
Forcadell highlighs in their report that although lack of space is the main obstacle investors shall have to face, this will not be a deterrent to reach a satisfying investment volume, better still than on 2016 (4.300M€). Consumer upturn has boosted the retail sector in all its formats and locations, even sorting obstacles like the limitation in licenses for restaurant or bars in the historic district (Ciutat Vella) of the city. Evidence of this positive evolution of the sector is the fact that the volume of transfer contracts and their price has increased.
If taken into account the surge of flagships, the expansion plans of big firms, the increase of family spending and the drive of neighbourhood local stores together with the consolidation of e-commerce, this allows for a vibrant retail sector, with great projection in every level. Commercial premises yields in Barcelona in 1S 2017 have followed a trend towards compression mainly in the 1st Lines due to pressure to investors’ pressure and optimal forecast of the sector.
The main market players in retail investment along the 1H 2017 have been international investment funds and REITs. Even though street front premises together with shopping centres are the assets that are generating most of the attention among investors, other products like retail parks and supermarkets are also in the center of outstanding investment transactions. Yields are increasingly lower while investment pressure rises.
As Forcadell pointed out in its market research report, since 2015 the retail sector has followed a very positive evolution, consolidating and generating a solid development outlook. In 2017, retail established its position as one of the most outstanding real estate sectors with great growth potential. Improvement of economic conditions, the employment market and overall consumption have been key factors for the development of the sector. The forecast for 2S 2017 expects this positive trend to continue.