The Spanish and Italian commercial property markets have all but collapsed with the number of transactions in both countries falling more than 90 per cent in the three months to July as investors worry about the future of the eurozone.

Only three property transactions were registered in Spain during the second quarter, down from 58 deals in the previous quarter. In Italy the slide was even more pronounced, with just two buildings being traded during the period, down from 56, according to data from Real Capital Analytics.

The severity of the decline highlights investors’ concerns about the risk of owning fixed assets in the two countries given the uncertain direction of the eurozone economy .,

The total value of transactions for offices, shops and industrial property in Spain was €67m for the second quarter, down 74 per cent from €260m in the first quarter. The inactivity meant Spanish property transactions were below those of neighbouring Portugal for the first time.

“Heightened risk aversion, particularly among cross-border institutional investors, has led to an almost complete collapse in southern European acquisitions,” said Joseph Kelly, director of market analysis at RCA.

In Italy, a few property sectors, such as the Milan retail space market, had held up well during the downturn. However, growing concern over the country’s economy and its future position in the eurozone appear to have snuffed out investor confidence across the market.

The decline of the Spanish property market, previously among the most active in Europe, has been more gradual.

During the early 2000s, the country’s property sector grew bloated on cheap debt and inflated expectations about future demand. But the global credit crunch dented confidence in the market, wiping hundreds of billions of euros off the value of Spanish property. The country’s banks were left holding vast portfolios of offices, shops and development land, most of which could only be sold at heavily discounted prices.

The drop off in activity during the last quarter, which has coincided with sharp rises in the borrowing costs for Spain, suggests even the appetite for buying distressed real estate has dissipated.

“We are not pricing in deals where revenues might end up being in pesetas, not yet anyway,” said one senior principal at a Spanish private equity firm.

“There is no reality in how to price anything there at the moment. You have eight years of unsold supply sitting in the banks, so how do you put value on anything else?” the person added.

Leading property economists have suggested that Spanish and Italian investors have been in denial about the state of their respective real estate markets.

Christian Ulbrich, European head of Jones Lang LaSalle, the property services group, said that reality had dawned as a result of further declines. “Things have deteriorated a lot since end of last year and prices are coming down drastically.”

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