July 14, 2014 1:06 pm

Recovery and growth pitches drive Spanish and UK real estate IPOs

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Construction workers are seen on scaffolding at a building site in Madrid, Spain,©Bloomberg

Construction workers at a building site in Madrid, Spain

The biggest concentrations of activity in Europe’s busy real estate IPO market have been in Spain and the UK, but for very different reasons.

The British real estate IPO market has been dominated by sector specialists with tales of structural growth to sell to investors. Student accommodation has been booming in Britain after the government lifted its cap on student numbers last autumn, while logistics is benefiting from shoppers’ shift to online retail.

Key examples of recent IPOs in these two sectors are Empiric Student Properties, Clipstone Logistics and Custodian Reit.

Britain has also seen some flotations that feed off the country’s renewed obsession with house prices. Online property portal Zoopla went public in a £919m IPO last month, while London residential development funding cash shell Urban Exposure is trying to raise £500m from investors.

In Spain, by contrast, large scale multi-sector cash shells have been sold to US-based hedge funds on the promise of Europe’s economic recovery. In the past couple of years these investors took Ireland’s property market from the doldrums to a renewed boom – and now they are hoping for the same again with the new wave of Spanish flotations.

Buying activity has surged in Spain in recent months as investors search for the next phase in the eurozone economic recovery story. As a result, deal volumes jumped 130 per cent year on year to hit €2.6bn in the 12 months to end-March 2014, according to property advisers Cushman & Wakefield.

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David Hutchings, Cushman’s head of investment strategy for Europe, the Middle East and Africa, said: “Investors’ confidence in a sustained economic recovery has risen dramatically.”

Spain left recession last year, and the IMF forecasts that Spain will grow 1 per cent this year. This makes property prices – which plummeted after the global financial crisis – look cheap.

But demand-driven price rises could foil investors’ plans, John Lutzius of Green Street Advisors said. “Cash boxes tend to raise money just as the market comes off the bottom and then end up sitting on cash as property prices go up; the cash drag means they end up underperforming,” he said.

Investors’ expectations of a repeat of the Irish turnround may be misplaced, Robert Duncan from Jefferies said: “Ireland has created a sense that when markets turn, they turn very quickly. But Ireland is a small market; in Spain the commercial real estate market is much larger.”

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