The extension of the ERTE (temporary layoff procedure) will preserve the estimated household income for a significant part of the year. In addition, the cost of financing remains at a historically low level. All of this will support house prices in 2021, which are estimated to fall by just -1% by the end of the year and delay the price drop until 2022 (-5%). Most of the fall in 2021 will be in prime neighborhoods in major cities, where the revaluation exceeds 10% and rents fall sharply from -10% to -15% in Q1 2021. Land prices should stabilize after losing -10% in 2020, according to experts from the Spanish Market Consensus.
Real estate activity will recover by +10% in 2021, thanks in part to the return of foreigners.
Real estate activity is expected to increase. However, it will have to wait until 2022 to return to pre-pandemic levels (500,000 transactions per year).
Despite the post-coronavirus economic recovery, major uncertainties about office and shopping center assets persist as the virus has structurally changed the way we work and consume. Media outlets such as Idealista, Brainsnews, and Consenso del Mercado forecast asset valuations to fall to -15% in offices and -20% in shopping centers. Hotels may also suffer from a strong decline (-15%), although this impact will be temporary, and their value will recover in 2 years. Our recommendation focuses on logistics assets and assets related to new technologies, especially 5G and cloud storage.
SOCIMIs (real estate investment trusts) share prices are largely in line with target prices, having recovered +10% this year, but uncertainty in the sector remains high. Therefore, we downgrade our recommendation to "Sell" from "Neutral" on the shares of Inmobiliaria Colonial and Lar España. Merlin Properties is the most attractive company in the sector in terms of risk-return ratio (the recommendation is "Neutral" compared to "Buy"). Developers (Aedas, Metrovacesa and Neinor) should receive good support in the context of stable housing prices and increased activity in the real estate sector.