Southern Europe is on a roll: it is no longer just Spain experiencing a remarkable recovery.
The positive sentiment that spread to Italy and Portugal first is now extending into Greece, Cyprus and other countries that until recently were seen as no-go areas, delegates heard at the PropertyEU Southern Europe, SEE & Greece Investment Briefing, which was held in London on Tuesday.
‘Market sentiment is extremely positive at the moment,’ said Alice Marwick, associate, European Research at Savills. Political risk is seen to be receding and economic fundamentals are improving, creating a benign environment which is attracting more foreign capital.
Investments in the region in the first half of the year have gone up to €9.8 bn, a 27% increase on 2016 and +58% on a ten-year average, according to Savills data. ‘Southern Europe now accounts for 10% of total EU investment volumes,’ said Marwick.
There are marked differences between the region’s countries, but they share some traits. All of them depend on cross-border capital flows. In H1 this year, foreign investors accounted for 67% of all activity in the property market.
Another common trait is that all countries in the region are benefiting from increased tourist numbers, and the growth of tourism has been a catalyst for the hotel and hospitality sector.
‘Tourism is a healthy and growing industry across the region,’ said Marwick. ‘Spain is the third largest destination in the world, recording an annual increase of 10.3%, but Portugal is also seeing growth: Chinese visitors alone have gone up 19% in the last year.’ In Greece, the travel and tourism sector represents 18.6% of GDP.
‘All of the markets offer good opportunities in the hospitality sector,’ said David Ryland, partner, Paul Hastings Europe. ‘Interest in the sector is such that investors who found it hard to buy a hotel in Greece are looking at new jurisdictions like Croatia, often doing joint ventures with a local partner.’
There is also life beyond tourism: an improving economy is generating momentum in the market and new businesses are being created, which will increase demand in the office and residential sectors.
‘There are many start-ups and investments in the tech sector which are opening up new opportunities,’ said Marwick. ‘Madrid is seeing strong growth in tech gross added value, up 4.8% this year so far. E-commerce is not much of a factor in these countries yet, but more logistics space is needed as well.’
In Spain retail is still the leading sector but in Portugal the office sector has overtaken retail, Marwick said, while offices represent some 50% of investments in Italy. In all these markets high demand and lack of adequate supply are pushing prime rents higher.
‘The lack of quality space in the CBDs for sizeable requirements is universal, and it is pushing rents up,’ said Marwick. ‘In Q2 this year, prime CBD rents were up 7% in Madrid, 6% in Milan, 8.3% in Lisbon and 15% in Athens.’