5 February 2015 – Expansión
Amancio Ortega acquired Gran Vía, 32 for €400 million in January 2015.
Axa Real Estate broke records when it paid almost €20,000 per square metre for Gran Vía, 37.
Rental prices on the street have appreciated by 40% since before the crisis.
The opportunities for refurbishing buildings and adding value are attractive for many investors.
In the last year and a half, investors, real estate companies and hotel chains have all acquired buildings on the street.
The iconic street is divided into three main sections: from Alcalá to Fuencarral, from Fuencarral to Callao and from Callao to Plaza de España.
The second section has the highest demand and is where many flagship stores are located, with rents of up to €185 per square metre per month.
Tenants of the premises between Callao and Plaza de España pay an average rent of €120/sqm/month and those between Fuencarral and Banco de España pay an average of €60/sqm/month.
The 100-year old Madrilenian street has become an object of desire for many investors, attracted by the growth potential of its rents for office buildings and, more importantly, for the retail spaces that house many of the world’s fashion giants.
More than 10 buildings have been sold on the same street in barely 15 months. The real estate activity on Gran Vía is frenetic. The 100-year old Madrilenian artery is living a golden age, reflecting the current boom in the investor market in Spain, above all in the centres of Madrid and Barcelona.
Along the 1.3km length of Gran Vía, investors ranging from Amancio Ortega, the owner of Inditex and the insurance company Axa, to Mexican investors and hotel groups, such as the Spanish chain VP Hotels, have all bought properties in recent months. These investments have driven the volume of acquisitions through the roof, to €1,185 million on one single street in a year and a half. “Almost every player in the market is showing an interest in Gran Vía, including developers, funds, private investors, real estate companies and hotel specialists”, explains Elvira Rodríguez, Director of High Street Investment at the consulting firm Aguirre Newman.
And it is not only the profile of investors that is diverse, so too are the properties they are buying, and as a result, the prices being paid. The firm GLL paid €54 million for the premises located at number 48, whilst Pontegadea spent €400 million for the building at number 32, which is currently undergoing renovation work and which will soon be the home of another fashion chain, Primark.
Why do all these investors want to buy property on this street?
“The investors that are buying on Gran Vía today have confidence in the potential that the street has both in terms of rental yields and the appreciation in property values. Another important aspect that has seduced some investors is the opportunity that the street offers for refurbishing some of the buildings and generating value through their active management”, say Aguirre Newman.
One of other main attractive features is the street’s focus as a visitor attraction, both for residents of Madrid as well as tourists. “From the point of view of retail, the street has shown counter-cyclical behaviour, since during the years of crisis, rental yields on the retail outlets on the best section of Gran Vía grew by more than CPI and no downwards adjustments have been observed”.
According to a report by Aguirre Newman, Gran Vía is the only high street where rents have not only not declined during the crisis; they have actually increased, by 40% since 2006. In 2014 alone, rents increased by 9.3%, on average, to amount to almost €200 (€185) per square metre per month in the areas with highest demand.
If the Madrilenian street is enjoying good times, then the behaviour of the section between Fuencarral and Callao is positively boomly. There, fashion giants, such as H&M, Zara, Mango and Primark have stores (or are preparing to open one in the case of the Irish firm). “Rents in Gran Vía will increase by more than 10% this year along the best section. In terms of new retail brands, some international companies still do not have a flagship store in Spain and may move in during 2015”, says Rodríguez.
Therefore, and even though almost half – 46% to be exact – of the stores on the street have a surface area of less than 200 square metres, the current flagship stores and those that will be created in the future, make Gran Vía one of the most attractive areas for investors and operators, says the report published by the real estate consultancy firm.
But it is not only the large fashion chains that are fighting for space on the Madrilenian thoroughfare. Its tourist appeal has not gone unnoticed by the many of the buildings’ owners or by hotel operators. The insurance company Generali, owner of number 10, will convert its property, which used to house the offices of Madrid’s Ministry of Education, into a hotel that the chain Vincci will operate. In addition to the project at Gran Vía 10, there has also been a change in the operator of the former Ada Palace, located at number two, which will become The Principal Madrid Hotel in a few months time.
At Gran Vía 31, the Mexican family Díaz Estrada, which also owns the property that houses the Apple Store a few blocks away from Gran Vía (in the emblematic Puerta del Sol), is looking to form a partnership with a hotel chain to convert its property into another prestigious establishment. “There is interest in three and four star hotels from both domestic operators, such as Barceló, Vincci and Praknik, as well as European ones, for example, Pestana”, says Rodríguez.
Conscious of this furore, the public administrations, such as the Community of Madrid, have taken advantage of the opportunity to make money from their properties and continue as tenants. In this way, the Community of Madrid has received more than €46.6 million for the buildings located at numbers 3, 18 and 20. Also, number 14, which they rent, has been sold by the Spanish company Dafor to a Mexican investor.
The good times that the Madrilenian street is currently enjoying will continue for the next few years, thanks to two landmark projects, located at the beginning and the end of Gran Vía: the Canalejas complex, led by Grupo Villar Mir, and the Edificio España, acquired by the Chinese businessman, Wang Jianlin. Both complexes will include a hotel, a retail area and luxury housing.
In addition, Wanda’s project is one of five hotel projects in the Plaza de España, which will all involve refurbishments in the near future: the Torre de Madrid, a 259-room four star hotel that will be managed by Barceló; another two properties owned by the hotel chain VP Hotels (one four- and five-star hotel, with 302 rooms) and the Hotel Chiqui, a four star establishment with 160 rooms. In total, 1000 new hotel beds.
Original story: Expansión (by Rocío Ruiz)
Translation: Carmel Drake
Source:: AURA Real Estate Experts