Spanish Retail Market Report 2008

Retail Market Report2008Shopping Centres in Spain

on point

Following a decade of high growth, athreat to the Spanish economy began toappear at the beginning of summer 2007spurred by the global credit crisis. Thissituation has caused a slowdown in deci-sions made by investors and developersdue to the credit squeeze and today, atthe start of 2008, it is already clear thatthe Spanish economy is entering a newstage in which more difficulties will arise.

The slowdown in the residential markethas had a moderating effect on 2007'sGDP growth which after a gradual reduc-tion reached 3.5% annual in the fourthquarter and has resulted in a 3.8%growth in GDP in 2007. This figure is inline with previous years, although it isprecisely this maintained performancethat allows the slowdown to be detected.

The main cause of the slowdown seen atthe end of 2007 was lower domesticdemand, both public and private, whichis evident in the 3.1% annual growth inhousehold consumption in 2007, 0.7%below the previous year’s growth rate.Increases in interest rates throughout theyear, finishing the year at 4.79% inDecember, together with sharp increasesin the prices of food, energy and fuelamongst others, have increased the2007 annual inflation rate to 4.2% whichhas had a knock-on effect on householdbudgets.

Towards the end of 2007, consumerexpectations were worse than was pre-dicted some months before as can beseen in consumer confidence data whichhas reversed the upward trend it hadduring the first part of the year, falling inthe last few months to reach -19 inDecember.

The reasons for this dispirited outlookcan be partly attributed to the high ratesof household debt (already exceedingnet disposable income by 135%,although at the end of the year the rategrew at the lowest rate of the last 13years, 13.2%), which makes it more diffi-cult to save (the savings rate hit an all-time low in the third quarter at 9.9% ofdisposable income), and also to the glo-bal financial turbulence, which aggrava-ted the slowdown of residential construc-tion – also not helped by the introductionof the new land regulations in the sum-mer.

Other decisive contributors to the drop inprospects are the lower employment cre-ation rate (which at 3% is 0.2% lowerthan the previous year) and the increaseof the unemployment rate (8.6% at theend of 2007). Further increases in theunemployment rate are anticipated forJanuary 2008.

As a natural consequence of theseresults, retail sales growth fell in 2007 to2.6% with large area retailers showing aslightly lower increase of 1.8% year-on-year. Notable developments include a4.2% growth in sales of clothing andaccessories and a 0.3% decline in hou-sehold-related products, which rely hea-vily on the residential sector.

Informe de Mercado de Retail 2008 - España / Retail Market Report 2008 - Spain.

COPYRIGHT JONES LANG LASALLE IP, INC. 2008. All rights reserved

EconomicContext

Retail Sales and Confidence

Source: INE, Eurostat January 2008

0

1

2

3

4

5

6

7

8

1999 2000 2001 2002 2003 2004 2005 2006 2007

% annual

-25

-20

-15

-10

-5

0

ConsumerConfidence Index

Retail Sales Index Consumer Confidence

In a recent report the World Bank rankedSpain as the 11th global economic powerconsidering the GDP in terms of purcha-sing power parity, with emerging econo-mies such as India, China and Brazilcoming before Spain in the ranking forthe first time. Elsewhere, Eurostat analy-sed consumer spending capacity in the27 EU countries in 2006, taking intoaccount the GDP per inhabitant in termsof purchasing power capacity. Spaincomes in at the exact average of EUcountries despite the increase in incomeper capita.

This indicates a stagnation of spendingcapacity during the 2004-2006 period,which was precisely a period of high eco-nomic and consumer spending growth

rates. Therefore, rising prices and unem-ployment in 2007 may have underminedSpanish consumers' purchasing power.The good news is that, despite this situa-tion, the growth of retail sales and largeretailers' sales have remained positivethroughout these years in Spain,although they have moderated recently.

In spite of the change in cycle or econo-mic slowdown, the forecasts made bymajor economic institutions estimateSpain's growth at around 2.7% in 2008,well above the 1.8% average growth rateforecast for the Eurozone. The currenttrend suggests slightly lower levels ofgrowth in 2009 and a gradual recoveryas of 2010.

Whilst there is a large focus on theresults of the March elections and thedecisions and measures of the winningparty, there is no doubt that the Spanisheconomy today is much more open andmature, and will possibly confront thecurrent difficulties in better conditionsthan in previous crises. Over the longerterm, the Spanish economy may alsopoint to a more balanced growth pattern.



Economic Growth: GDP

Source: Consensus, EIU January 2008

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

2003 2004 2005 2006 2007 2008 2009 2010 2011

% annual

Spain EU 27 Euro Zone

Market performancein 2007

With total retail surface area up 7% inthe year, the shopping centre sector con-tinues to be an attractive option for deve-lopers, investors, operators and consu-mers. In 2007, new shopping centre ope-nings remained high with 32 openingsand 11 extensions or second-phase ope-nings, contributing a total gross lettablearea (GLA) of 862,300 m² with totalinvestment in development reaching€2,675 million.

Although launches of new centres andGLA increase are the lowest in the lastfive years, close to 2002 levels when themarket began to take off, 2007 has beena record year in terms of new GLA inextensions and second phases, which inaddition have been larger than in pre-vious periods. In this respect, there is anongoing trend for phased project ope-nings and shopping centre extensionstend to be of a considerable size.

Examples of recently opened secondphases include Rivas Futura, with its50,000 m² H2Ocio shopping centre inRivas Vaciamadrid (Madrid) and EspacioMediterraneo in Cartagena, Murcia, tota-lling 37,165 m².

Extensions include Porto Pi in Mallorcawith 6,974 m², and El Deleite inAranjuez, with 5,700 m². But the mostnotable developments were the completerefurbishment and extension of the ElRosal shopping centre in Ponferrada(formerly Las Medulas), which has beenre-located and extended by 37,500 m²,and Barrio Art Deco in Madrid, which hasincreased its surface area by adding26,085 m² to the former La Ermita shop-ping centre.

The regions with the highest volume ofnew retail space are Madrid (200,000m²), Comunidad Valenciana (134,600 m²)and Andalusia (110,600 m²). By province,in terms of new GLA, Madrid is followedby Valencia (88,600 m²), Zaragoza(78,500 m²), Murcia (70,500 m²),Guadalajara (64,100 m²) and Cadiz(62,800 m²).

2008 has started with 578 shopping cen-tres in Spain and a GLA of 13 million m²,including all types of shopping centres ofover 5,000 m², which represent a densityof 288 m² per 1,000 inhabitants. Thisfigure drops to 230 m²/1,000 inhabitantsif only pure shopping centres are takeninto account, that is, excluding leisurecentres, factory outlets and retail ware-



ShoppingCentres

Source: Jones Lang LaSalle, January 2008

, ,

,,

,,

,

,

,

,

Shopping Centres Annual Openings

0

200.000

400.000

600.000

800.000

1.000.000

1.200.000

1.400.000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

m²

Annual GLA Extensions / 2nd Phases

Main Openings 2007

Leisure Centre26,085MadridBarrio Art Decó (extension -refurb)

Medium34,105Alcalá de Henares, MadridAlcalá MagnaLarge37,165Cartagena, MurciaEspacio Mediterr áneo (2nd Phase)

Large46,800Jerez de la Frontera, C ádizÁrea SurRetail Warehousing Park45,100ZaragozaPlaza Imperial (1st Phase)

Large50,000Rivas Vaciamadrid , MadridH2 Ocio (2nd Phase) – Rivas Futura

Medium32,600Xativa, ValenciaPlaza Mayor de Xativa

Large37,500Ponferrada , LeónEl Rosal ( extension -refurb)Large43,000Ensanche de Vallecas , MadridLa Gavia (1st Phase)

Large55,814GuadalajaraFerial Plaza

Leisure Centre13,226MadridUGC ManoterasRetail Warehousing Park21,600Talavera de la Reina, ToledoEl Golf

CategoryGLALocationName


houses. Based on the first figures, Spainis ranked ninth in terms of density inEurope, behind the UK and France.

If we take into account the GLA frompure shopping centres only, Spain movesto the fourth position behind the UK,France and Germany, and slightly aboveItaly.

GLA density per inhabitant by region hasnot seen significant changes and overall,those regions ranked both above andbelow the average have not changed. As

a result of both demographic changesand new openings, the regions movingup one position in the ranking areNavarra, Asturias, ComunidadValenciana and Castilla-La Mancha.Among those which fell in the rankingare Murcia, the Canaries, La Rioja andCantabria (which falls exactly on the ave-rage).

Today, 41% of shopping centres are over10 years old and only 7% have recentlyundergone refurbishment. Increasingcompetition and the need for the retail

mix to adapt to new consumer patternsare leading some developers to considera refurbishment or a re-positioning, as ashort term measure.

It is precisely in these moments whenshopping centre management is critical,both for managing the refurbishment andanticipating the need to refurbish andalso fro achieving higher visitor numbersunder the prevailing conditions.



Shopping Centres Density in SpainGLA (m2) per 1,000 inhabitants

Average SC only230

Average


288

050

100150200250300350400450500

Madr

id

Nava

rra

Astu

rias

Murc

ia

Cana

rias

Pais

Vasc

o

Com

. Vale

ncian

a

La R

ioja

Cant

abria

Anda

lucia

Arag

on

Cast

illa L

a Man

cha

Cast

illa y

Leon

Balea

res

Galic

ia

Cata

luña

Extre

mad

ura

Ceut

a & M

elilla

Shopping Centres Density in Europe

Total GLA in sq m / 1,000 inhabitants


0 50 100 150 200 250 300 350 400 450

UkraineBulgaria

RomaniaRussiaTurkey

GreeceBelgium

GermanyHungaryPoland

Slovakia *Latvia

LithuaniaItaly

Czech RepublicSpain

FranceUK

PortugalLuxembourg

Estonia Ireland

SwedenNetherlands

Outlook

2008 will be another record-breakingyear in terms of new GLA, in line with2003 and 2006, estimated at 1.2 millionm² during the year. In fact, some of theopenings that were postponed from theend of last year have confirmed openingduring the initial months of 2008, eventhough launches at the start of the yearare not usual. These include A Laxe,Vigo, and Portal de la Marina in Ondara,Valencia, scheduled for February, andEspacio Buenavista, Oviedo, scheduledfor March.

It must be pointed out that approximately25% of the new GLA relates to secondphases or enlargements, such as thePlaza Imperial in Zaragoza (82,300 m2)or Alegra in San Sebastián de los Reyes,Madrid (25,500 m²). Around 34% ofthese projects are large-size centres.

Despite the high levels of existing retailsurface area, a large number of projectscontinue to appear throughout Spain.This responds to the fact that there is stillspace in the market for new shoppingcentres in their various guises and alsothat recently some developers havebecome more interested in the retail sec-tor to diversify their portfolios in the lightof recent changes in the residential mar-ket.

Taking into account the most viable pro-jects for the next three years, there is1,635,000 m² in 58 projects under cons-truction and 936,000 m² in 41 licensedprojects. If we add unlicensed projectsand enlargements and second phasesunder construction, it is estimated that2010 could close with 16,611,400 m² ofGLA distributed throughout 683 centres,resulting (if all projects are developed) ingrowth of 28% from 2007, a very similarlevel to the previous three years (29%).

In the same way that various projects atthe end of 2007 delayed their openinguntil 2008, some of the centres that hopeto open in the next three years – but arestill in initial phases – might not be ableto complete it in this period. It is not justthat there is greater competition. Therecent economic situation in which con-sumption is one of the worst-affectedvariables together with forecasts for thenext few years could cause a slowdownin the development of some centres.

On one hand, some developers mightfind themselves unable to find financingfor their projects in the short or medium-term, whilst on the other, several retailersthat have already begun to notice thedownturn in consumption have decidedto suspend their enlargement and refo-cus their strategy for the coming months.

Something similar could happen to someof the projects planned further into thefuture: currently a total of 217 projects,equivalent to 7 million m², defined to agreater or lesser extent, have been iden-tified in the market for development overthe next 7 or 8 years. The developmentof all of these projects, however, doesnot seem viable at the moment. Thedevelopers should wait for the economyand the sector to settle over the comingyears to see if they will then be able tocontinue.

In the European context, taking intoaccount the pure shopping centre pro-jects for 2008 and 2009, Spain is thefourth country in terms of new GLA. Ifthe numerous retail park projects, inclu-ding retail warehouses and leisure cen-tres or factory outlets, are also included itis clear that Spain would overtake Turkeyand move into third position behindRussia and Italy.

Returning to the possible scenario bet-ween 2008 and 2010, Andalusia standsout amongst the AutonomousCommunities for the largest number ofprojects planned for the next three years,followed by Madrid, Valencia, Aragónand Galicia. However, Madrid, Zaragoza,Cádiz, Murcia, Valencia and Las Palmashave the most individual projects.



1494470013007300

10069800

1389100277600

0

2.000.000

4.000.000

6.000.000

8.000.000

10.000.000

12.000.000

14.000.000

16.000.000

18.000.000

SBA 2004 SBA 2007 SBA 2010

Expected future evolution of the GLA in Spainm²

29% 15%

26%

28% 1,937,400


Planned without licencePlanned with licenceUnder construction 16,611,400

16,333,800 , ,,c,

,,,,

,,

It is estimated that future density willreach 349 m² per 1,000 inhabitants bythe end of 2010, taking licensed andunder construction projects into account.That number rises to 357 if projectscurrently still without a license are alsoincluded. Provinces which will see thegreatest increase in density (with increa-ses of more than 90 m²/1,000 inhabi-tants) are Melilla, Zaragoza, Huelva,Cádiz, Burgos, Las Palmas, Murcia,Cáceres, Pontevedra, La Coruña,Almería and Seville, while those that willsee the greatest decrease (with -10 to -12 m²/1,000 inhabitants) are Alava,Navarra and La Rioja.

With the exception of 2006, averagedensity in Spain has increased graduallysince 2000, largely due to populationgrowth. It has grown by 25% in the lastthree years, and is expected to grow at aslightly lower rate over the next three,around 16%. Despite the fact that thepopulation growth is expected to conti-nue, this could also be taken as the firstsign of a future moderation in the growthof the shopping centre market.

With the exception of the developersassociated with hypermarkets Carrefour,Alcampo and Eroski, the largest shop-ping centre owners in Spain are Unibail-Rodamco, ING Real Estate, SonaeSierra and Metrovacesa, in that order.However, in the coming three years, the

developers who will develop the largestamount of space will be Erosmer Ibérica,InterIkea, Realia Business, Grupo Larand Multi Development. Riofisa, LSGIEand DuProcom would join this ranking ifthe total number of projects in the long-term are also taken into account.

It is precisely this type of specialist deve-loper in the sector which is most likely toget new projects off the ground in thecoming years, in a scenario in which it isincreasingly complicated to develop well-located, innovative centres which are intouch with consumers' new habits.

The need to carry out extensive marketstudies that are capable of reliably disco-vering and measuring the most suitableconcept for the target clients is increa-singly important. In this way, the subse-quent leasing, tenant mix and manage-ment are capable of guaranteeing thesuccess of the centre.



Expected Growth by Autonomous Community


Total GLA in ‘000s sq m

0 500 1000 1500 2000 2500 3000 3500

Ceuta & MelillaLa Rioja

CantabriaBalearesNavarra

ExtremaduraAsturias

Castilla La ManchaCastilla y Leon

AragonMurcia

Pais VascoGalicia

CanariasCataluña

Com. ValencianaAndalucia

Madrid

Existing GLA

GLA 2008 -2010

Future Density map by Province(existing centres, under construction and with licence)

NationalAverage 335


(m2/1,000 inhabitants)

From 500 to 700From 350 to 499From 250 to 349From 150 to 249From 70 to149

The average cumulative size of the cen-tres continues to grow in line with pre-vious years, reaching 22,504 m²although the centres launched in 2007are on average somewhat smaller thanthose launched in 2006, which averaged26.950 m². This is because an increasingnumbers of projects are launched in pha-ses and that the towns where projectsare located are generally medium orsmall, as demonstrated by the 55% of2007’s new GLA which was opened intowns of less than 80,000 inhabitants.

Although the general trend is usually toopen small centres in small towns, incre-asing the size in line with the increase inpopulation, it is worth pointing out that in2007 five retail warehouse parks haveopened in small towns (up to 50,000inhabitants) while 4 large centres haveopened in towns with populations from50,000 to 100,000 inhabitants.

In total figures, 2007 was characterisedby the opening of small centres (26% ofnew GLA), followed in importance by

retail and retail warehouse parks (16%)and large centres (14%). However, mostGLA went to large centres (27%), retailparks (17%) and retail warehouse parks(14%). Looking at the total shopping cen-tre openings by number of centres, themost numerous were small centres(34%) and those based around hyper-markets (20%). By GLA, the list is hea-ded by medium and large centres, whichaccount for 22% and 21% of total GLA,respectively.

The type of projects forecast for the nextthree years is varied: while 25% of theannual average number of centres willbe small, the majority of scheduled largeor very large centres or retail parks willbe opened in 2008 and 2010. Most retailwarehouse parks will be inaugurated in2008 and 2009. In 2009 and 2010medium-sized centres will be moreimportant.

For some time now the sector has beenasking what the anchor of these newshopping centres will be. The food"anchors" behind shopping centres ope-ned in 2007 have shown the advance ofthe supermarkets over hypermarkets,given that 41% of centres had a super-market while only 31% had a hypermar-ket and 28% had no food retailer at all.

This stems as much from limitations inacquiring licenses as from changes inconsumers' preferences. According to arecent study by AC Nielsen, 70% of con-sumers now do their shopping in super-markets. In those centres planned for thenext three years, this trend becomesmore significant – 43% will have a super-market, 27% a hypermarket, and 30%will not have a food anchor.

Although there was speculation about adrop in the number of cinemas in shop-ping centres, it is clear that futuremedium or large-sized projects will conti-nue to have a cinema. Currently 39% ofshopping centres have multi-screen cine-mas, and over the next three years, 37%of projects will include next-generationcinema complexes. These are expectedto add 300 new screens to the market.

However, it is evident that due to pro-blems in the sector, some existing cine-mas have already been substituted byother commercial or leisure anchors thatare able to continue to generate the volu-me of visitors that the retail units in thecomplex need. These have particularlybeen large-area fashion or domesticappliance stores contained within theshopping centre or alternatively the con-version into various retail units.



Trends,Affluences &

Sales

GLA opened in 2007 by size of location

Population


41%

10%

19%

8%

23%

0 - 49,00050,000 - 99,000100,000 - 199,000200,000 - 699,000Madrid

There has been a 22% drop in cinemavisits over the last three years, 8% in2007 alone, dropping particularly in thefirst five months of the year andSeptember. Growing competition hascaused the closure of 36 cinemas in2007, 8 of them in shopping centres,although the net total of screen closureswas 37, given that new complexesusually have a large number of screenswhich compensates for the closure ofsingle screens or smaller, older cinemas.

It is specifically the cinemas that open inshopping centres that are the main bene-ficiaries of closures, given that they workto improve their facilities and incorporatethe most innovative technologies (Imax,Xpand, Cinegames, cinemas with fra-grance and sound effects, etc.). Thisaspect serves to underpin the degree ofdifferentiation which is increasinglynecessary for new projects.

Apart from this differentiation, traditionalanchors and recently emerged operator-anchors such as Ikea or Media Markt orothers that may emerge, what does thefuture hold for shopping centres?

Everything seems to indicate that therapid change which consumer habits aresubject to will result in a change of cyclearound 2010: there will be more centres,more competition, more e-commerce,higher population, more retired people –we hope with greater purchasing power– more retailers, more leisure options, ademand for better service and an increa-sed necessity to care for the environ-ment and enjoy limited free time.

This will probably have an impact on thecost of developing centres, above all toinvest in sustainable buildings and incentre management demands. Newshopping centre concepts will also beginto emerge, increasingly looking to pam-per and surprise the client, in both speci-fic environments and mixed use comple-xes.

Throughout the past year we have seenhow almost all operators had ambitious

expansion plans, for both shopping cen-tre units and retail warehouse parks,encouraged by good consumption perfor-mance and the success of shopping cen-tres among resident populations and tou-rism.

Although the Footfall Iberica visitor indexnumbers generally increased during2007, the results in December were2.3% lower than the same month in2006. Analysing visitor numbers from asample of centres in different categoriesshows that the average increase is onlyaround 1%. Obviously, each case is dif-ferent, given that some centres benefitedfrom the integration of new retailers,others suffered due to new competitionand others, such as some leisure cen-tres, registered falls in visitor numbers.

The drop in visitor numbers was particu-larly seen (principally in secondary cen-tres) in the last months of the year, fromSeptember to November, whileDecember and the first week in Januaryregistered, as is habitual, a recovery invisitor numbers, although these werelower than 2006.

Based on our sample of shopping cen-tres, the impact on sales of the growth invisitor numbers in 2007 has been diversebut generally positive, and on averageretail sales have increased by 9%.

Looking at the last four months of theyear again, this increase is considerablylower at around 4% due to the effect onconsumption of the general economicsituation and weather – which was amore pleasant than expected.

Comparing the annual sales data inshopping centres and the growth of retailsales, it is easy to understand the motivefor the closure of a multitude of smallshops, which are more sensitive to nega-tive evolution of consumption than chainsand do not benefit from the protectionafforded by being part of a shopping cen-tre.

Following forecasts made by variousbusiness associations, the number ofvisitors during the sales period seems tohave grown at a somewhat slower pacethan in 2007, although sales grew ataround 5%-7%, in line with expectations.This is as a result of the effect that incre-ased prices and worsening expectationshave had on consumers, who are beingmore cautious and prefer to wait untilsales periods before purchasing. Thisyear, almost all retailers brought salesperiods forwards, as well as increasingdiscounts.



Tipology of Centres


Considering the number of schemes

0%

5%

10%

15%

20%

25%

30%

35%

40%

Small Retail Park RetailWerehouse

Park

Large Medium LeisureCentre

Hypermarketbased

FactoryOutlet

CommercialGallery

Very Large

2007Total Stock

Therefore, Spanish consumers havedecided to continue spending, but atlower pricepoints at least for a number ofproducts and services. As a result, salesof own-brands have increased in super-markets and discount retailers, as wellas sales in factory outlets and low-costrestaurants, such as McDonald's.

The sales performance of the principleretailers in 2007 could be generally des-cribed as having been more positive forlow-cost brands and for the electronicsand new technologies sector, and mode-rate for other retail activities such as clo-thing, leisure and household (linked withthe evolution of the residential sector). Anotable aspect is the worse performanceof sales in Madrid relative to the rest ofthe country.

Luxury goods continued to show a strongperformance and further growth is expec-ted for 2008. This sector tends to bequite resilient in times of less favourableeconomic climates and new operatorscontinue to show interest in the sector.

Adverse economic data continues to bereleased during early 2008 which hasproved detrimental to consumer confi-dence and the confidence of some retai-lers who, in some cases, are consideringhalting their expansion plans until thereis more visibility on how the market willevolve. Simultaneously, other retailerswith a smaller presence in Spain conti-nue to expand whilst others turn to emer-ging countries in Eastern Europe andAsia. Although the economic slowdown isbeneficial for some, all retailers are logi-

cally being more cautious when selectingthe projects in which to develop theirbusinesses in the next years.

Faced with this changing environment, itis expected that February and March willbe more challenging than usual for aretail sector which awaits political andeconomic developments in the country inthe coming months. As discussed, thissituation could delay the development ofcertain projects, due to their need forfinancing and potential difficulties in lea-sing. However, the traditionally upbeatSpanish consumer may dispel the nega-tive outlook looming over the sector andcause spending to increase when thecurrent period of uncertainty is over.



Demand from retailers for retail spaceremained robust throughout 2007, fuelledby strong economic indicators. For shop-ping centres, demand for prime locationswas very strong during the first half ofthe year and strong for secondary loca-tions, with keen interest in taking spaceon the Mediterranean coast. However,the changes in the economic and finan-cial backdrop were noticeable during thesecond half of the year, moderatingdemand for shopping centres in secon-dary locations.

As for retail warehouses, demand forprime projects gradually declined fromvery high to high levels, and from high tomoderate levels for secondary locations.However, demand for high-street retailunits remains high, due to two factors:interest from national chains, which sho-wed a slight slowdown by the end of theyear; interest from luxury brand opera-tors, which has proven strong, especiallyamong new entrants.

Innovative retailers which opened storesin Spain in 2007 include Jules, Esprit,McGregor, Cóctel, Claire’s and FashionKids. The most dynamic businesses

during the year were clothing and acces-sories, perfumes, shoes, sports gear andbooks in chronological order.

The shopping centre vacancy rate hasnot seen significant changes relative toprevious periods, continuing to be at aminimum in prime centres and between3-5% on average in secondary centres.

Rental levels for prime shopping centresfollowed the trend observed in previousyears, with an increase of 4.6% inMadrid and 5% in Barcelona – in linewith the growth rate recorded by the bestlocations on the Mediterranean coast.Secondary shopping centre sales decli-ned as a result of increasing competitionand, overall, have seen growth rates inline with inflation or remained stable.

According to our database, the averagerent for shopping centres throughoutSpain is 18 €/m². This average has beenfairly stable over the last two years – adecrease of only 1 €/m² – despite theincrease in the number of shopping cen-tres and especially retail warehouseparks, with lower average rents.

At present, the economic uncertainty isexpected to last for several months befo-re returning to the steady growth seentoday. For this reason, prime rents areforecast to stabilise in 2008, with onlymoderate or inflation-rate increases, as adirect result of lower private consumptionand delayed expansion plans by opera-tors.

A potential increase in incentives andvacancy rates is also expected in secon-dary locations which are less consolida-ted and adapted to demand from theircatchment areas.

Broadly speaking, retail warehouse rentsremained stable or showed increases inline with inflation for prime locations andthe trend is expected to continue in2008.

Average high-street retail units sawincreases of 7.8% and 7% in prime loca-tions in Madrid and Barcelona respecti-vely. The outlook for 2008 points to amoderate increase in rental levels forprime streets, while secondary locationswill be negatively affected by the econo-mic backdrop and will probably remainstable.



Demand &

rental levels

Prime Rents in Spain EUR/m²/monthShopping Centres


0

20

40

60

80

100

120

2001 2002 2003 2004 2005 2006 2007

Madrid Barcelona

High Street Units (€/m² /month)

221Madrid

18-22,5España

215Barcelona

Retail Warehouses (€/m² /month)

79-105Barcelona

84-113Madrid

Shoping Centres (€/m² /month)

Demand levels

High Street Units

Retail Warehouses

Shopping Centres

SecondaryPrime

Strong Weak

Following record volumes of investmentin 2006, the Spanish retail sector conti-nued to maintain large volumes of assettrading throughout 2007, reaching €1.75billion in 39 transactions. Although this isa 40% drop on 2006, and also 11% lessthan the levels reached in 2005, it is thethird-highest total in recent years.

If Banco Santander's €2.04 billion branchnetwork transaction is included in thisdata, it would exceed the previousrecord. However, it is considered to bemore of a financial transaction and forthat reason has not been included.

The average total volume of transactionshas dropped because this year therewere significantly more prime retail unittransactions than in previous years buttheir volume was not as high as in 2006,reaching only €45 million.

The shopping centre sector continues tosee the highest investment volume,accumulating €1.88 billion in 14 transac-tions, 68% of the total volume. Retailwarehouses and supermarkets accoun-ted for €119 million in 6 transactions,while retail units reached €445 million in19 transactions, representing 7% and25% of the volume respectively.

Among the most relevant transactionsare the purchase of La NuevaCondomina and Metromar shopping cen-tres, in Murcia and Seville respectively.The purchase of the latter became thebenchmark for prime yields in 2007.

In 2007, various portfolio transactionshave been closed of mainly high-streetretail units and the odd supermarketchain, making up 18% of total transac-tions and 12% of volume, among whichthe portfolios of Barclays, Telepizza andthe supermarkets sold by Redevco arenotable.

The vast majority of the total volume(82%) is still cross-border transactions,which usually indicates that the buyer isforeign given that Spanish developersare still the largest sellers of shoppingcentres. Private investors are gainingground particularly in the area of retailunits and occupiers in the retail warehou-se sector.

The main buyers were Irish and Britishfunds and institutions, accounting forabout 50% of the volume, while Spanishcompanies accounted for about 26% oftotal volume which, by type of buyer, wasled by property companies.

Without including high-street retail unitsand in relation to the European market,the increase in investment volume in2007 was 7% in continental Europe(excluding Ireland and the UK), showinga decrease in the fourth quarter as aconsequence of the international creditcrisis and general investment uncer-tainty. Despite this, the number of trans-actions in this quarter was greater thanthat of similar periods in previous yearsand transactions in Spain accounted for5% of the total volume.

If 2007 began with a lively market withhigh levels of demand, the summer's glo-bal finance crisis slowed down many ofthe transactions already in negotiation,especially if they involved high levels ofcredit which banks were not willing to



Investmentmarket

Retail Investment Volumes in Spain


733 7741123

563

1971

2898

1753

0

500

1000

1500

2000

2500

3000

3500

2001 2002 2003 2004 2005 2006 2007Mi

llion

€

,,

,

,

2007 Investment perRetail sector and volume in Spain


ShoppingCentres

68%

High Street Units25%

RetailWarehousing

7%

Main Transactions in 2007

RedevcoTesta20,040Gijón, AsturiasLos Fresnos

PraderaCredit Agricole10,040Vigo, Pontevedra Travesia

HendersonGrupo Lar16,000ElcheL’Aljub

WereldhaveInversoil22,700Villalba, MadridPlanetocio

InvescoCap Center12,770San Sebasti ánLa Bretxa

UBSNovaindes (Multiocio )23,000Mairena de Aljarafe, SevillaMetromar

British Land, PillarTrusam140,000MurciaLa Nueva Condomina

Heron International

Axa Reim Ibérica

PURCHASER

Realia Business24,000Alcobendas , MadridDiversia

Alius Inversiones14,000MadridUGC Manoteras

GLA VENDORLOCATIONNAME


finance. Investors became much morecautious, especially foreign investors,alarmed by negative news from the resi-dential sector. This news really reflecteda far worse situation than what wasactually perceived in the country.

At the end of 2007, various transactionsthat were in progress were closed,although there was a slight upward trendin yield levels, especially in the shoppingcentre sector. This is something that hasnot been seen in the high-street retailunit sector, an area traditionally conside-red more liquid and secure, as well asaccounting for less volume.

Yield levels decreased to 4.5% in thefirst half of the year for prime shoppingcentres and stand-alone prime retailwarehouses, reaching 4.75% for retailwarehouse parks and 4.25% for primehigh-street retail units. The uncertainty

generated by the global credit crunchhad increased shopping centre and high-street retail unit yields to 4.75% and4.5% by the end of 2007, returning tolevels as seen at the start of the year.

Demand for prime product continues tobe high at the beginning of 2008. It issecondary schemes which are beingexamined much more cautiously, and insome cases it has even been necessaryto negotiate the closure of transactions.Foreign investors can see increased riskin the Spanish market and their appetitefor investment has decreased. Althoughthey still consider Spain to be a goodmarket in which to invest, they prefer tofocus on opportunities that could arise inemerging European markets, given thatFrance and England find themselves in asimilar situation.

In general, investors believe the retailsector, specifically shopping centres, tobe a safer refuge at the current time. Asa result, it could see increased inves-tment demand coming from the residen-tial sector in the coming months.

In 2008, the investment market in shop-ping centres will be, at least in the firsthalf of the year, a buyers’, rather thansellers’ market, as it has been in pre-vious years. Reassessments of the riskof secondary assets will probably takeplace and an increase in available assetscould be seen as the year progresses.

While some investors have been hampe-red by the tightening of credit conditions,others are waiting for more interestingopportunities to appear derived from ahoped-for increase in yield levels. This,however, does not seem likely at themoment, nor in the early months of 2008.



Purchasers Nationality 2007


0%5%

10%15%20%25%30%35%40%45%

English Spanish Irish Dutch Swiss French German

Total RetailShopping Centres

Prime Yields 4th Quarter 2007


2%

3%

4%

5%

6%

7%

8%

2002 2003 2004 2005 2006 2007

Shopping Centres Retail Warehousing High Street Units

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Luis IñiguezDirector División Retail [email protected]

Steven WeavingDirector de Inversión [email protected]

Antonio MoraDirector de Gestió[email protected]

Helena de ArcosDirectora [email protected]

Angeles PérezDirectoraLocales [email protected]

Silvia Chapinal AnalistaResearch [email protected]

COPYRIGHT © JONES LANG LASALLE IP, INC. 2007. All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any meanswithout prior written consent of Jones Lang LaSalle. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we can-not offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them.

Contactos Retail Jones Lang LaSalle en España

Spanish Retail Market Report 2008

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