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The 2008 Crash Lasted 7 Years and Industrial Property Prices Fell by 40%: What will Happen in this Crisis?

By last year, industrial assets had recovered only 17.5% of the value that they lost during the 2008 real estate crash, after dipping to minimum levels in 2014. According to the College of Registrars, the average transaction price was €527/m2 at the end of 2019.

By last year, industrial assets had recovered only 17.5% of the value that they lost during the 2008 real estate crash, after dipping to minimum levels in 2014. According to the College of Registrars, the average transaction price was €527/m2 at the end of 2019.

Like other asset segments, the 2008 financial and real estate crisis hit the industrial market hard. The average transaction price of industrial assets went from €792/m2 to €471/m2, whereby losing 40.5% of their value.

The decrease in prices lasted 7 years, from their peak in the fourth quarter of 2007, to when they bottomed out in the third quarter of 2014. “From that moment, transaction values ​​remained stable for two and a half years, until in the second quarter of 2017, when they began to rise slowly at a rate of between 5% and 6% year-on-year,” says Antonio Ramudo, Data Scientist at Brainsre.

Thus, by the end of 2019, according to the Registrars, with respect to the minimum levels reached in 2014, only 17.5% of the value lost during the crisis had been recovered, with an average price of €527/m2. The current crisis is showing signs of exceptional severity throughout the world, but it is true that the industrial segment is being hit less hard thanks to the dynamism of e-commerce during this time of lockdown.

Variation in prices

The autonomous regions with the most expensive industrial products are also those that suffered the greatest decreases in absolute values. As such, the gap between the maximum prices of 2008-2009 and the minimum prices reached after the fall was greater.

In this way, the regions with the highest average transaction value at present are the Balearic Islands (€1,513/m2), the Community of Madrid (€1,371/m2), País Vasco (€1,263/m2), the Canary Islands (€1,190/m2) and Cataluña (€1,111/m2).

They represent the three most important industrial centres in the country plus the islands, which due to the scarcity of this type of product tend to have more expensive prices. All regions are currently well below the maximum values ​​they reached before the bubble burst in 2008.

Impact of the fall and recovery

With a 61% loss in value, the Canary Islands was the region that suffered the largest drop in prices during the last crisis. Aragón, Cantabria, Galicia and the Balearic Islands were the other autonomous regions that suffered the greatest price decreases, with more than 55% being knocked off their value”, says Antonio Ramudo.

Pontevedra was the province whose prices suffered the most as a result of the 2008 crisis, with a decrease of 70%, from €809/m2 in the third quarter of 2008 to €243 euros/m2 in the first quarter of 2014. Many industrial estates along the Vigo – O Porriño axis witnessed that fall, which lasted for more than 5 years. Huesca was another province that suffered badly during the previous crisis, and with minimum and maximum prices similar to those of Pontevedra, it suffered a 69% decline in transaction values.

50% decreases in Madrid and Cataluña

Nor were the large capitals spared from the crisis. Prices in Madrid fell by 50%, in Barcelona by 52% and Sevilla, which suffered the most, by 66%.

After the 2008 crisis, “36 of the 52 provinces that make up Spain saw a decrease in their average transaction prices of more than 50%. Extremadura was the autonomous region that got off the lightest, although transaction values there still fell by 40%. Nevertheless, it is worth noting that it has always been the region with the lowest prices, so the margin for loss was also lower”, says the Data Scientist.

And amongst the provinces, those that fell by the least were the ones that reached the lowest maximum prices, and therefore had the least to lose: Jaén, Granada, Cáceres, Albacete and Palencia all suffered decreases of less than 40%.

“It is interesting to see also how the various regions have been recovering after leaving behind the crisis of 2008. The islands are the regions that have recovered the best thanks in part to the shortage of product there. In the Balearic Islands and the Canary Islands, 27% and 30% of the value lost has been recovered, respectively”, says Ramudo.

Recovery

Murcia is the mainland region where prices have recovered the most, with 28% of the value recovered with respect to their maximum prices. Madrid has recovered by 22% and Barcelona by 11%. Up to 21 provinces have recovered by less than 20%.

Some regions have recovered almost none of their value: Castilla-La Mancha is currently at values ​​close to the minimums reached in 2015, and prices in Castilla y León are now the lowest they have been for the last 15 years.

“In general, it could be said that since the falls after the crisis slowed down in 2014 and 2015, transaction values ​​have remained fairly stable in almost all regions. Although, there has been some slight price growth since 2017 in places with more demand, thanks in part to the boom in the logistics segment, a leading product in the sector in recent years”, concludes the analyst.

Duration of the fall

Unlike the coronavirus crisis, the 2008 crisis reached different regions in Spain at different times; maximum prices were reached in Cataluña, Aragón, Castilla-La Mancha and Castilla y León in 2007, with the Aragonese region peaking first, in the first quarter of 2007, before starting a prolonged 10-year price drop.

Most regions began to register price decreases between 2008 and 2009, with the tardiest ones, Galicia and País Vasco, seeing their prices fall in 2010. Extremadura was the territory where the recovery after the crisis began first, since during the third quarter of 2012, after three years of decline, prices there bottomed out and began to rise. Prices in the Balearic Islands and La Rioja bottomed out in 2013, and in the rest of the regions between 2014 and 2015.

If we talk about the duration of this crisis, from the beginning and until the end of the price decreases, we see significant asymmetry between regions, from the shortest, less than 4 years, in Extremadura, Balearic Islands, La Rioja and Galicia, to the longest, 8 years, in Andalucía and, 10 years, in Aragon.

Madrid and the País Vasco, regions with important industrial centres, suffered falls that lasted 5 years, while Cataluña took almost 7 years to stop its fall.

The end of 2019

The provinces that closed last year (2019) with the highest average transaction values were the Balearic Islands (€909/m2, although that figure represents a recovery of only 7%), Bizkaia (€827/m2), Madrid (€837/m2) and Santa Cruz de Tenerife (€773/m2).

“The reason why these provinces recorded the highest average transaction values is due to factors such as scarcity and the limited nature of the industrial product, such as in the Balearic and Canary Islands, the long industrial history and constant demand in País Vasco and the importance of Madrid as a logistics centre”, describes Ramudo.

By contrast, the provinces that ended 2019 with the lowest average transaction values were Cáceres (€252/m2), Ciudad Real (€260/m2), Jaén (€261/m2) and Palencia (€262/m2). The lack of demand and their isolation, since they are located far away from the major industrial centres, make industrial assets unattractive products in these provinces.

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The 2008 Crash Lasted 7 Years and Industrial Property Prices Fell by 40%: What will Happen in this Crisis?

By last year, industrial assets had recovered only 17.5% of the value that they lost during the 2008 real estate crash, after dipping to minimum levels in 2014. According to the College of Registrars, the average transaction price was €527/m2 at the end of 2019.

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