ARCHIVED - Falls in Spanish property prices and rentals could be more significant than originally forecast due to covid

The pandemic is expected to cause a domino effect on commercial property in city centres

All over Spain the seriousness of the second wave of the coronavirus pandemic is becoming more and more apparent as the autumn goes on, and although the first concern in these circumstances is always to protect the health of residents, at the same time many economic analysts are hurriedly revising their forecasts for the future in the light of the latest developments.

Nowhere can this be more clearly seen than in the property sector, where during the summer many analysts were predicting relatively short-lived and insignificant effects of the pandemic on sales figures and market prices. Now that the threatened second wave has become a reality, however, some are now producing more pessimistic projections for the next few years, among them the consultancy firm Forcadell.

Residential property
In terms of housing, Forcadell are now expecting an average drop in market prices across the country of 16 per cent by the end of 2021, while their analysts forecast an even sharper fall of 18 per cent in rental prices. As ever, though, the trend will not be uniform across all parts of Spain by any means, and the firm expects the effects in Madrid and Barcelona to be somewhat less drastic with a fall in market prices of around 12 or 13 per cent.

The differences amongst Spain’s regions will depend to a large degree on the extent to which the demand for housing is reduced by the effects of the pandemic, and it is thought that those areas in which tourism is most important – particularly international tourism - will suffer most.

These areas are likely to see a much greater fall in prices in the short-term due to a variety of factors, principal amongst them the lack of presencial buyers due to the continued travel restrictions imposed on those visiting Spain from abroad and the lack of mobility within the country.The economic situation and fear of job losses is also likely to impact on the purchasing power of the domestic market, particularly with regard to second properties.

Thus, Forcadell are forecasting depreciation of as much as 20 per cent in residential property in Palma de Mallorca and Tenerife as well as in the major mainland cities of the Costas such as Valencia, Alicante and Málaga, while at the other end of the scale cities such as Huesca, Mérida, Soria and Logroño which predominantly depend on stable domestic demand, will remain relatively unaffected.

At the same time the number of residential property sales completed by the end of this year is forecast to be 27 per cent lower than in 2019, although this is expected to be counteracted by a 15 per cent increase in 2021. Much of this is due to an accumulated decrease caused during the lockdown period and the difficulties in completing purchases during the latter half of the year due to the disruption caused by the second wave.

Rental prices
In this case the expected drop of 18 per cent over the two-year period analysed is likely to be even more significant in Madrid and Barcelona, for two main reasons: firstly, tourist apartments and short-term rental properties are being converted into long-term rentals, increasing supply, and secondly, the spending power of many tenants has been reduced by the pandemic.

To a certain degree similar factors will play a part elsewhere in the country, and again the regions which depend most on tourism are likely to see the sharpest falls in rental prices. On the other hand, those cities and districts where there is greater dependence on public administration and the food and agricultural sectors are likely to escape the sharpest falls.

The rentals market was relatively unaffected by the pandemic in the first two quarters of 2020, but data for the third quarter is already showing a different profile and the situation is expected to change significantly in the coming months.

Commercial property and office space
Many people associate the property sector almost exclusively with housing, but in some ways the far-reaching effects of the pandemic are potentially even more dramatic in the field of commercial properties, such as shops, and office space.

With changes in shopping and consumption habits having been accelerated by Covid, more and more retail outlets are closing their doors all over Spain, either going out of business or concentrating on online sales, and in consequence there are simply more commercial premises available than are required. Forcadell are now warning that by the first quarter of 2021 as many as 20 per cent of such properties could be lying empty, and considerably more in the centres of large cities such as Barcelona and Madrid.

One of the contributing factors is again the “disappearance” of tourism, especially international tourism (as reflected by the latest figures regarding passenger numbers on international flights at Spanish airports). Without tourist spending many shops could become completely inviable within the next six months, the firm speculates. This could be particularly noticeable in cities for example which service the cruise ship sector in which activity has ground to a complete halt and communities in which tourism is a major economic contributor.

Exeltur expects the losses borne by businesses working in the tourism sector to reach 106 Billion euros this year, a situation which will logically lead to the closure of a large number of tourism-orientated businesses, leading to falling demand for premises.

At the same time, of course, the reduced spending power and willingness to venture out into the streets on the part of residents, as well as the restrictions on movement which are now being re-introduced in many parts of the country in response to the second wave of the coronavirus, affect almost all retail establishments. Similarly, the sharp increase in the number of people working from home also has a direct affect: if people are not commuting into work every morning, they are no longer stopping off at a café for their morning toast and coffee, or browsing the shops during their lunch breaks. Demand for office space is logically expected to diminish as a result. Headquarters and more prestigious office spaces are also expected to seek smaller premises or move out of top-end areas into more affordable accommodation in slightly cheaper areas, all contributing to the domino-effect which ultimately concludes with less demand for top-end rental accommodation both domestically and commercially in the top-end areas of the major cities.

The change in shopping habits from high-street sales to online shopping which has been encouraged by the “stay at home” messaging of the coronavirus crisis will also play its part in redefining the commercial needs of the business sector in the near future.

In this context one of the few areas in which Forcadell expect a healthy short-term future is that of logistical centres of the kind used by e-commerce businesses for the distribution of online sales, while on the other hand shopping precincts in town and city centres run the risk of rapidly becoming “ghost towns”.

Meanwhile, the pandemic has brought about a complete re-think for the office space sector. With more employees working from home the amount and the kind of office space required by companies has changed beyond recognition in a very short time, and analysts believe that one of the upshots could be a sharp rise in the amount of space occupied by “co-working”. This is the practice of different companies and businesses sharing an office space in order to save costs and use common infrastructures, helping workers to avoid feelings of isolation and the distractions which working at home can entail.

In addition, co-working spaces could solve many of the problems encountered this year by those hurriedly choosing or being obliged to work from home, such as designating a part of the family home as an “office”. Already the pandemic has resulted in a noticeable change in the preferences of purchasers and tenants in the housing market, with an increase in demand for more rooms as well as an independent garden.

So, while the immediate concern of the authorities in Spain must be to deal with the spread of Covid as effectively as possible, it is worth bearing in mind that in the long term the effects on all sectors of the country’s property market are likely to be extremely important. Only time will tell exactly what the changes will be and how dramatic any devaluation of property turns out to be, but it seems certain that the “new normality” will be vastly different from what was the accepted norm at the beginning of this year.