HE value real estate assets The decline will stop before the end of the year. This is the main conclusion of the ‘Return Forecast’ report prepared by the consultancy firm Colliers, which guarantees that the prices of the best offices in Madrid and Barcelona, the reference market within the ‘brick’, have fallen by around 30%. Since the first quarter of 2022.
Since the first edition of the study, that is, in April 2022, they indicate a turnaround in the market following the outbreak of war in Ukraine. Sector returns (‘yields’) increased between 1% and 1.5%: While an investor demanded a 3.5 percent return when purchasing an office building in the center of the country’s two largest cities in the first quarter of last year, he has now increased the return required to make his investment to 4.6 percent. 4.8%.
When a buyer demands more profitability, it means they are willing to pay a lower price, which in turn Theoretical drop in property values of around 30%However, it could not be crystallized due to lack of processing. The required returns are relative to the risk-free interest rate, which is currently considered a ten-year Spanish bond yielding 3.7%. It also requires extra profitability because a real estate asset involves more risk than purchasing government debt.
At this time, no larger correction in values than those that have already occurred is expected. “The worst of the real estate correction in Spain will occur in 2023. prices will hit bottom“As long as there are transactions,” says Jorge Laguna, Business Intelligence director of the consultancy firm, in his statements to this environment. Currently, the investment volume has decreased greatly, up to 50% in the first half. , as the consulting firm predicted in November last year, because there are large gaps between the price the buyer is ready to pay and the price the seller expects to receive.
What will happen in the coming months?
According to Colliers expert, the European Central Bank will stop the interest rate increase at around 4.25 percent and 4.5 percent. slowing growth in yields Required for real estate assets. “We also expect bonds to reach maximums in the second half of 2023,” he notes. From here, the price of properties will be more easily determined, with stable returns between 4.6% and 4.8% between 2024 and 2025.
“This will bring more certainty to the markets. The possibility of interest rate cuts in the medium term, will open investment opportunities It is certain that many players in the industry will benefit from this. “Holders will take on the new scenario and revive investment activity by moving price positions closer to investors,” the report adds. The Colliers model predicts yields to contract around 60 basis points from 2026.
Values won’t recover until 2026
Jorge Laguna believes that starting from the end of the year, investors can start sending realistic offers and getting good returns. “Buying a building in a good area at 4.9% is interesting because yields will no longer increase. As time goes on, owners will begin to see market yields stabilise, which will add to debt maturities or we expect investment volume to be low in the third quarter of 2023 and increase in the fourth quarter however, They will increase as 2024 progresses“, To explain.
According to the report, investors who closed their purchases between 2023 and the beginning of 2024″They will be able to earn good returns thanks to the compression of ‘yields’ “The annual return (IRR) they can achieve if the debt is not used during the debt period will be close to double digits. Even higher if used with 50% leverage. Moreover, this will be a minimally significant change in some of the 2021 operations.” It won’t be until 2026 that it will reach financial profitability.