Spanish retail investors - time to think about exiting?

E-commerce is increasingly shaping retail real estate across the world. From a market share of 16% in the UK (2018) to 9% in Continental Europe (Net Average, 2018) to 5% in Spain (2018)(Statista), E-commerce has changed the way investors and developers see retail space. Most retail developers will say that physical retail is completely different and relevant in its own right, but even in Spain where penetration is limited, the effects can be seen. 

Risk management strategies for Spanish retail were discussed at a recent club meeting on the 10th of October in Madrid. The members of GRI Club Spain joined in a collegial, living room setting to discuss with other senior developers, investors and operators risk management strategies and how to be ready for challenges facing the sector. After all, the title of the discussion read ‘Downsize, digitalize, diversify or die?’

One of the reasons that online retailers have struggled with entering Spain is because of the scarcity of warehouses across the country has resulted in a lack of distribution to secondary cities, and many towns. We are seeing where the limits are for companies such as Amazon, which creates new opportunities in the sector. Does retail investors need to start thinking about their exit strategies with respect to e-commerce?  

Possibly not. It’s hard to accurately predict, as Spanish logistics market is going through a period of transformation. Between 2016 and 2017, the all time yearly record take-up of warehousing rose by 60% in Barcelona and doubled in Madrid, and yet the average vacancy rate of the two cities is still below 5%(Savills). Furthermore, next year will see most Western European countries, Spain included, having their population of millennials grow past 50% - which is the main demographic of online retail. If we consider the cut off point of millenial birth to be around 1999, they’re getting to their own age where they have their own disposable income and consumerist freedom. 

However, the room was unanimous in remaining steadfast against e-commerce. They believed instead of burying physical retail, it pushes it even more to be apparent and pushes the developers to make them better assets. Even ‘click and collect’ has allowed retail spaces to provide the classic and interactive experience while still skipping queues and knowing things are in stock. 

GRI Club is hosting specialised and tailored discussions on subsectors including light industrial, logistics, offices and residential for the most senior players in the real estate. GRI Light Industrial & Logistics Europe 2019 takes place on 6-7 November in Amsterdam, and GRI Offices 2019 and GRI Residential Europe 2019 take place on 19-20 and 26-27 in London, respectively.

Article by Matt Harris