Savills World Research Spain Retail Market Report Spain retail warehouses January 215 GRAPH 1 New retail projects by type of schee GRAPH 2 Consuer confidence and retail sales 35 3 25 2 15 1 5 Sall Large Leisure Centre Retail Warehouse Mediu Very Large Outlet Retail Park and Shopping Centre 1 9 8 7 6 5 4 3 2 1 Consuer confidence index Retail sales index 16 14 12 1 8 6 4 2 28 29 21 211 212 213 214* 215* 216* 25 M6 25 M12 26 M6 26 M12 27 M6 27 M12 28 M6 28 M12 29 M6 29 M12 21 M6 21 M12 211 M6 211 M12 212 M6 212 M12 213 M6 213 M12 214 M6 214 M12 SUMARY The growth potential of the retail warehouse segent is attracting new operators and investors The retail warehouse arket coprised 4.4 illion sq at the end of 214 (including retail parks and freestanding retail warehouse units), which equates to y-o-y growth of 4%. In ters of the distribution of space by property type, freestanding units continue to account for the highest aount of arket share copared to retail parks, with 59% and 41% respectively. However as this segent consolidates the arket is steadily oving towards the developent of retail coplexes, which is pushing the nuber of freestanding units down in coparison to retail parks. 3% of new retail projects in the pipeline over the next 24 onths fall in to the retail park category,, corresponding to a total of 185, sq. Adherence to handover dates, as has been the case over recent years, will depend, aongst other aspects, on the letting rate. The achievable rental level for prie properties reains stable at around 16 per sq /onth, due to the low vacancy rate. The retail warehouse segent is an attractive niche area with potential upside. There is growing interest fro specialist international players fro other European arkets for this alternative investent product, but the specific traits of the Spanish arket, coupled with the lack of product on the arket are aking it difficult to coplete transactions. The ibalance between supply and deand of investent product, which follows suit with the reainder of the coercial property arket, has driven prie yields to harden further, which could stand at between 6% - 6.5% (1 basis points below the sae figure registered in 213). savills.es/research 1
Market Report Spain retail warehouse Econoic outlook The Spanish econoy continues to grow on the back of national and international confidence in Spain. According to the latest data provided by Eurostat, for the first tie since the start of the crisis, Spain's growth is now above the Eurozone average (.5% above). The Eurozone econoy is now being affected by the econoic stagnation of the countries, which up until now, had been the driving forces in the area: Gerany and France. However, it does look like the job arket is on the end. After 23 quarters of decline, INE presented the second increase in job creation in Q3 214. The EPA also registered an uneployent rate of 23.7%, which still reains extreely high copared to pre-crisis figures, but this figure is beginning to diinish. In ters of deand, consuers are responding to the iproved econoy. Q3 214 saw the fourth consecutive rise in household spending. Furtherore, in 214 the CIS consuer confidence indicator now stands at above the historic average (25-214), after six years of being below this figure. In any event, one ust take in to consideration that we find ourselves in a phase of lowering prices, which could result in a slight decline in consuption. "The retail density and spending power of an area are the factors which identify optial locations for a new schee" Gea de la Fuente, Savills Research Finally, soe of the latest forecasts by various bodies have been revised very slightly downwards, but all predict a burgeoning econoic recovery. Retail park stock In Noveber 214 the Spain retail park arket aounted to just over 1.8 illion sq (GLA). Over the past few years the retail park arket has been very active in ters of new developents, particularly in 211, when alost a third of projects were for this property type and accounted for 2% of new space. In addition, a five-year activity study deonstrates a spike in construction activity between 25 and 21. Bogaris has been the ost active copany on record, accounting for close to 2% of retail park space. The latest project it delivered was Ciudad de la Iagen, which is of particular note, as it was selected by Costco to locate its first store in Spain and in Continental Europe. The overall regional distribution of retail warehouse space was slightly affected with the opening of various projects over the year, with the Counity of Valencia and Galicia oving up the leader board with Parque Burjasot and Parque Ferrol respectively. However, generally speaking, the distribution of retail park space by autonoous counity has barely altered at all. The ranking continues to be headed up by Andalusia, followed by Madrid and the Counity of Valencia. The three cobine ore than 6%. Only Galicia iproved its position with Parque Ferrol coing on to the arket, oving it fro the end of the scale up to seventh position. Catalonia continues to be in last position due to its strict protectionist policies for sall traders, which the Catalan governent put in place over the past few years. The size of retail parks and their distribution has not changed a great deal either. The average size of the four projects that were opened between 213 and 214 stand at GRAPH 3 Econoic indicators GRAPH 4 Retail arket - Copletions GDP Household consuption CPI 6% 1,2, GLA retail arket (excluding retail parks) GLA (retail parks) 4% 1,, Annual growth 2% % -2% sq 8, 6, 4, 2, -4% -6% 1T 6 3T 6 1T 7 3T 7 1T 8 3T 8 1T 9 3T 9 1T 1 3T 1 1T 11 3T 11 1T 12 3T 12 1T 13 3T 13 1T 14 3T 14 until 198 1982 1984 1986 1988 199 1992 1994 1996 1998 2 22 24 26 28 21 212 214* 216* Source: INE, AECC /*forecasts 2
January 215 around 26, sq, which has increased the share retail parks sized between 2, and 29,999 sq fro 16% to 2%. Despite the increase in this space category, the standard sized retail park continues to be between 1, sq and 19,999 sq, accounting for 4% of total space. If all of the space in the pipeline for the next 36 onths is delivered as scheduled, the division would be very siilar. However, several large projects will coe on to the arket, such as the developent that Grupo Lar and Wit Retail are working on in Sagunto, Valencia, (Cruce de Cainos), coprising 45, sq of GLA and the acro coplex underway around the IKEA store in Alfafar (Valencia), coprising ore than 6, sq of GLA. It is also iportant to point out that it is everore the nor for one developent to incorporate a retail arcade area, as well as a retail park, as is the case with Torrecárdenas. The project was originally only set to be coprised of freestanding retail warehouse operators, however, it was then expanded in to a large coplex, in order to include a wide range of brands. Freestanding retail warehouse stock According to our estiates, 2.56 illion sq of space equates to freestanding retail warehouse units, which is a slight 5% increase copared to the figure published in the previous Spanish retail warehouse arket report (Spring 213). This is the second increase since the sharp contraction seen in 212 (-12% copared to the previous year), which was due to various brands restructuring their workforce and points of sale, including the closure of all PC City stores. The opening of the second largest IKEA store in Alfar, Valencia (37, sq ) and the Geran brand Bauhaus in Paterna, (close to 2, sq ), have significantly increased the aount of freestanding retail warehouse GLA in the Counity of Valencia, eaning it has now oved up one place and leads the regional distribution ranking, which was headed up by Catalonia in 213, thanks to the opening of the largest IKEA store in Spain in Sabadell. In third and fourth position are Andalusia and Madrid respectively. The one area that appears to be out of tune with the reainder of the country is Catalonia, this is due to the restrictions ipleented by the local authorities on large retail units. Total supply of retail parks and stand-alone retail warehouse units Taking in to account the total GLA in both retail parks and freestanding retail warehouse units, the retail warehouse arket in Spain stands at 4.4 illion sq of space, which is a slight 4% increase copared to the sae figure in 213. The extreely high provision of retail space in Andalusia, Madrid and the Counity of Valencia in the retail park and freestanding retail warehouse categories, guarantees the the top three spots in our study of the overall arket. Between the three, they cobine ore than half of all the space. By province, the situation is very siilar to last year's arket report. Madrid far exceeds the total volue of space per province, accounting for alost 16% of the total, followed by Valencia with alost 8% and Barcelona with 7.5%. Retail density in the retail warehouse arket Retail warehouse density in Spain aounts to close to 93.3 sq per 1, inhabitants, which is an increase of 6% copared to the sae figure in 213. The iproveent in the ain econoic indicators, as well as the better consuption forecasts coupled with the drive for an easily buildable product, that requires less anageent, have favoured the continual growth of this property type. Six of the 17 autonoous counities are above the national average, all of which are above 1 sq. Aongst the regions with the highest retail density, soe of which have the largest retail parks in the country, is Murcia, with Parque Mediterráneo (5, sq ). Aragón, with Puerto Venecia GRAPH 5 Retail parks by size 11% 21% 11% 17% 4% < 9.999 sq 1. sq - 19.999 sq 2. sq - 29.999 sq 3. sq - 49. sq > 5. sq GRAPH 6 Retail parks - Stock and openings sq 2,5, 2,, 1,5, 1,, 5,, AECC /*forecasts Accuulated GLS 199 1994 1996 1999 21 22 23 24 25 26 27 28 29 21 211 212 213 214* 215* 216* (85, sq ), which up until last year held second place. The second place has now been substituted by the Counity of Valencia thanks to the new arrivals of IKEA and the largest Bauhaus store in Spain, which between the two of the have increased the aount of retail warehouse space by 4, sq The autonoous counities with the lowest aount of retail warehouse space continue to be the autonoous city of Ceuta and La Rioja. Over the past few years Extreadura and Catalonia jostled for third place before botto, Openings 12 1 savills.es/research 3 8 6 4 2 Nuber of openings
Market Report Spain retail warehouse trading places with each other depending on whether one of the two opened a significantly large project or not. In 213, the opening of the IKEA store in Sabadell oved Catalonia up one place, but in 214 the opening of the first Leroy Merlin store in Badajoz oved Extreadura up this tie. In ters of by province, Valladolid oved up in to first place with 18 sq, thanks to the opening of the Decathlon store in Arroyo de la Encoienda, which fors part of the properties around Rio Shopping. Cadiz and Toledo share second place with 176 sq, the difference between the two is negligible. It is interesting to note that two of the three provinces with the highest retail density have schees being developed by Inter Ikea Centre Group, which incorporate the Swedish giant's own store and a shopping centre. In this respect, all IKEA stores breathe new retail life in to the towns where they are located and their surrounding areas and IKEA is considered to be one of the strongest anchor tenants there is for a retail park or shopping centre. According to sources in the sector, retail sales for retailers located around the new store in Alfafar could see their sales rise by as uch as 8.5% per year, thanks to the expected increase in visitors, which is forecast to increase by 8.7%. The list is rounded off with Teruel, Ceuta and Cáceres, however, it is surprising that Teruel is in this category as, according to preliinary data published by INE for 211, it has an incoe per capita, which is 1% above the national average, and also has one of the tenth lowest uneployent rates in the latest eployent census, which would suggest that its population has ore spending power and should therefore ean that it is a good option for developing retail parks. Affluence vs. retail density By cross-referencing GDP per capita data with the retail density of the retail warehouse arket, one can quickly see which regions have good opportunities to develop a new retail park. However, the GRAPH 7 Retail park arket - Average GLA (retail parks and stand-alone retail warehouse units) sq 18, 16, 14, 12, 1, 8, 6, 4, 2, Murcia Aragón Madrid Castilla - La Andalucía Canarias Asturias País Vasco differences between the aounts of retail by province within the sae region distort the result, as whole regions would be ruled out due to an excess of retail space in one specific province. Consequently, the provincial study shows six provinces with a GDP per capita of above 25, and retail density in the retail warehouse sector of below 75 sq Adding other econoic variables, such as the uneployent rate and gross disposable incoe, one gains ore of an insight in to the arket's actual situation. There are various provinces which are ore niche, ost of the in the northern zone, where there is roo for ore retail space and where an excess of retail supply could be endorsed in areas with ore oderate levels of business activity, but thanks to their location close to other provinces (as is the case with Badajoz) or due to high levels of touris in the local area would benefit fro extra footfall. Expansion plans The expected recovery in private consuption is encouraging the expansion plans of the ain retail brands in the arket. Alost all of the have continued to push forwards with their growth strategies over the past few years, but they have all been studied down to the inutest detail, in order to optiise Average GLA Galicia Baleares Castilla y León Extreadura Counidad La Rioja Spanish average Cantabria Cataluña Navarra Ceuta Melilla the investent. The reservation of space in new developents or taking space in areas close to consolidated shopping centres are the standard option of choice, as well as the safest. This was the case with Leroy Merlin's recent opening of its first store in Badajoz next to the El Faro shopping centre, which opened in 212. Both coplexes benefit fro the visitor footfall they both generate. The brand has announced that its next opening, scheduled for the end of 215, will be the opening of a store in Majorca (where it already has another two stores), which will be in line with the copany's expansion plan, which forecasts 22 new stores over the coing 5 years. In H1 214 IKEA also opened its store in Alfafar (Valencia) and continues a pace with its expansion plans, which ais to allow everyone in the country to be able to reach one of its stores in under one hour by car. The copany has not detailed the location of its future stores, but it would appear to still be interested in Alicante, despite the bureaucratic obstacles to the project. In addition, IKEA plans to open stores in the centre of Madrid, where consuers can see and try the products, prior to going to the ain stores on the outskirts of the city. This would be a pilot project, the first of its kind for the copany 4
January 215 anywhere in the world, but which would not alter the copany's existing business odel. Media Markt has also announced its intention to reach one hundred stores in the next seven years, it currently has 72 spread across the whole of Spain. This growth will be achieved via its traditional store forat, in shopping centres and retail parks or freestanding retail warehouses, although the units will be saller. Furtherore, after the good results achieved in its store located in the retail arcade in the Castellana 2 business coplex in Madrid, it has also added locating stores in city centres to its copany policy, with stores of between 2, sq and 2,5 sq. In line with this policy, in id Deceber and coinciding with the Christas capaign, the copany opened its second store in central Madrid, in the forer Benlliure Cinea, on Madrid's Calle Alcalá. A few weeks prior to this it opened its first inner city store in Valencia on Calle Colón. Conforaa, the French chain specialised in hoewares, recently went public with its abitious expansion plans for Spain, planning to reach 9 stores over the next ten years, which would virtually quadruple the current nuber of stores (it currently has 25 points of sale). New retailers Costco selected Seville as its first location to kick-off its presence in Continental Europe, which will be followed by a new store in the southern area of Madrid. Based on the response fro consuers, the US group believes it would be feasible to open up to 12 stores over the coing ten years. Various provinces are being studied as future locations, such as Barcelona, Valencia and Zaragoza, as well as opening ore stores in Madrid, which appears to be the area with the greatest potential. Carrefour is also testing out its new retail forat 'Supeco' in Spain, a low-cost cash and carry. It already has various centres in Andalusia, Madrid and Galicia, which are located on the outskirts of the city and are in freestanding retail warehouses. Ever since the start of the crisis, consuers have replaced GRAPH 8 Coercial density (density parks and stand-alone retail warehouse units) Melilla Ceuta La Rioja Cataluña Extreadura Asturias Cantabria País Vasco Canarias Baleares Galicia Castilla - La Mancha Castilla y León SPAIN Andalucía Navarra Madrid Aragón Counidad Valenciana Murcia "The iproveent in econoic forecasts and the potential developent of the retail warehouse sector has spurred on the interest of new players, both in ters of retailers, as well as investors" Luis Espadas, Capital arkets 5 1 15 sq /1, inhab. copulsive spending with responsible spending and price has becoe everore iportant. Despite the fact that econoic indicators are suggesting that things are gradually on the end, it appears that low-cost is here to stay, which will ean that we will see ore low-cost brands appear across the length and breadth of the country. Rents Hardly anything has changed in ters of rental prices. The best retail parks are close to 1% let, which akes it increasingly difficult to ascertain the achievable prie rent, which we have left at 16 per sq /onth, however figures above this ay be achieved for new lease agreeents in the ost sought after locations. The cuulative fall copared to the top of the arket is slightly over 25%, which deonstrates the robustness of the sector copared to other sectors in the real estate arket, where rental prices have fallen by up to as uch as 6% copared to 27-28 figures. Fro a European standpoint, rents are generally stabilising, however, there are soe countries that continue to see rental corrections, with the ost arked being in Norway and Sweden at around 1%. The United Kingdo was the first to see growth, with rents rising by 6% y-o-y. The average prie rent in the countries onitored stands at 14 per sq /onth, which Spain is 14% above. The United Kingdo continues to head up the list in ters of rents, with a rent of 35 per sq /onth, slightly ore than double Spain's figure, which would suggest good upside potential. savills.es/research 5
Market Report Spain retail warehouse Future projects The retail park arket is playing an ever-greater role in the national retail arket. Despite the fact that the retail park arket hardly accounts for 12% of the overall arket, close to 3% of new space in the pipeline is eararked for this type of product (close to 185, sq ). As has been the nor over recent years, conforing to initial delivery dates very uch depends on the letting rate of the retail space, which eans that only those projects that really are viable will be the ones to actually coe to arket. Investent arket The renewed investor interest in the Spanish arket fro 213 onwards, which was thanks to an iproveent in the econoic outlook, has continued ever since, which has translated in to frenetic activity in the real estate investent arket. On the other hand, the weight of oney in the arket and the lowest rate for 1 year Spanish bonds on record, have been the driving forces behind catching the attention of investors in order to take positions in a burgeoning real estate arket recovery. In the coercial property sector, traditional retail product (shopping centres and the retail warehouse arket) has regained the ground it lost to highstreet retail units. Consequently, with just two weeks to go before the end of 214, the overall transactional volue for retail properties is now approaching 2b traded so far this year, which is alost four ties ore investent than in 213. The retail warehouse arket increased its total volue transacted copared to 213, albeit to a lesser extent. The 71.5 registered in 214, is ore than four ties the aount transacted in 213 ( 17). Despite the y-o-y coparison reaining positive, the aount of retail warehouse space transacted in ters of retail product, has fallen, priarily due to the lack of quality product on the arket, as there is pent-up deand interested in this niche area, which is interested in the potential growth of this sub-arket, and also due to several egadeals closed in the shopping centres segent. Key transactions In ters of the key transactions copleted, of particular note is Parque Vistalegre, located in Zaora, which was acquired by KKR as part of a portfolio of two properties owned by British Land. The total value of the transaction was 9 illion, of which slightly ore than 1% equated to the retail park. The other key transactions were for freestanding retail warehouses, with an average lot size of seven illion euros. Sociis also invested GRAPH 9 Prie retail warehousing rent in Europe /sq /onth Souce: Savills GRAPH 1 Retail investent arket M 4 35 3 25 2 15 1 5 3, 2,5 2, 1,5 1, 5 London Stockhol Helsinki Madrid Paris Brussels Retail investent volue (excluding RW) 2 21 22 23 24 25 26 in this arket. The retail warehouse occupied by Media Markt in Villaverde (Madrid) was acquired by Grupo Lar's Socii and Axia Re purchased the Bauhaus in Les Gavarres (Tarragona) via the purchase of a portfolio owned by Credit Suisse. In the latest weeks of the year Lar acquired also the Media Markt and Toys R Us stores in El Alisal (Santander). Deand A key question to take in to consideration in relation to the retail warehouse arket is that the specific traits of this arket, require in-depth explanation to international buyers that have only recently Prie rent (Q3 14) 27 Dublin 28 Vienna 29 Athens 21 Average prie rent 211 Asterda 212 Belgrade 213 Prague Retail warehouse investent volue 214 6
January 215 entered the arket. Despite being a traditional retail product, it is not governed by the sae procedures as its big brother (shopping centres). For exaple, in ters of quantifying financial data, it is not coon, except in very specific cases, to be able to see retailers' sales figures, as variable rents are not requested, which akes it ore difficult to justify the robustness and solvency of certain retailers. Hence, there is a large pool of deand that specialises in this sector, which has coe forwards to sound out and understand the arket, but any of the have been frustrated by the fact that they have found adequate product in ters of property type and location, but this has not coplied with their structural contract criteria. In addition, there is another type of new investor in the niche retail warehouse arket in Spain, but which has an established track record in France, which is heavily focused on freestanding properties with well-known brands on long leases. In 213 they started their search for opportunities and have since copleted soe transactions. Yields As is the case in other segents of the coercial property arket, deand far outstrips product for sale, which is driving yields down. The current yield for a prie property now stands at between 6% and 6.5%, assuing that it eets all investent requireents. Hence, we are now 1 basis points below the achievable yield registered at the end of 213. The yield for secondary schees currently is now in the region of 8% (stable since id 212). Copared to the other ain European arkets, Spain's prie yield sits idway, given that the average prie yield stands at 6.6%, with the two extrees being Belgrade at 9.5% and London at 4.5%. Spain is therefore a copetitive country, where arket risk has subdued and the forecast for the ain acroeconoic indicators, as well as private consuption, are uch ore positive. OUTLOOK 215 The gradual iproveent in the forecasts for the ain acroeconoic indicators, corroborate the growth forecast. Private consuption forecasts are now increasing at a slightly lower rate than uneployent, which will be key in order to increase consuer confidence and encourage spending. It sees that the low-cost philosophy will not be solely linked to ties of crisis and that it is here to stay. Consuers have now becoe ore responsible in their spending patterns and everore business endeavours in all sectors are focused on low-cost. Retail warehouses are the obvious choice for these types of businesses. The fashion segent, which is so prevalent in retail warehouses in other neighbouring countries, still has not found its feet in retail parks. The entry of new low-cost fashion retailers that are adapted for this odel, will be a new wake-up call for the arket. In the eantie, having a presence in both retail parks and shopping centres could be a good alternative. There are everore brands that are diversifying in order to reach a wider range of consuers. In the retail warehouse segent, H&M chose the Luz Shopping retail park to launch its new store, instead of the shopping arcade. GRAPH 11 Prie yields in Europe - Q3 214 After various years of sitting on the sidelines, traditional retail product (shopping centres and retail warehouses) have ade up lost ground. The retail warehouse arket has stirred up strong interest fro any international investors that are convinced of its growth potential. However, the differences of the Spanish arket copared to their respective hoe countries or the countries where they are currently operating, ean that an in-depth study of the properties is required in order to ascertain if they are in line with their investent criteria or not. 1% 9% 8% 7% Spanish investor involveent in this arket (including sociis) is still inconsistent. The arket will continue to be doinated by international investors. 6% 5% 4% 3% 2% 1% % Belgrade Asterda Milan Warsaw Helsinki Dusseldorf Madrid Oslo Munich Haburg Brussels Frankfurt Dublin Stockhol Paris London The ibalance between supply and deand for quality product, as is the case in the other real estate sectors, will ean that rents will continue to rise. Furtherore, the lack of product in other arkets, such as offices, could ean that investors will be drawn to this sector by properties with higher yields and less risk, with quality tenants and high occupancy rates. savills.es/research 7
Market report Spain retail warehouse GRAPH 12 New developents oportunities * Retail parks and stand-alone warehouse units * Factor analysis carried out with SPSS: The prograe proportionally rescales the different weightings of the four variables analysed, in order to detail the in one graph. Savills Tea For further inforations, please contact Luis Espadas Capital Markets +34 91 31 1 16 lespadas@savills.es Salvador González Investent Retail +34 91 31 1 16 sgonzalez@savills.es Gea de la Fuente Research +34 91 31 1 16 gfuente@savills.es Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The copany, established in 1855, has a rich heritage with unrivalled growth. It is a copany that leads rather than follows, and now has over 6 offices and associates throughout the Aericas, Europe, Asia Pacific, Africa and the Middle East. This bulletin is for general inforative purposes only. Savills accepts no liability whatsover for any direct or consequential loss arising fro its use. It is strictly copyright and reproduction of the whole or part of it in any for is prohibited without perission fro Savills Research. Savills Coercial Ltd 8