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The Retail Crisis of 2008 Lasted 5 Years As Store Prices Fell by 33%: How Much Could They Fall During this New Crisis?

The Covid-19 crisis has come at a time when the prices of commercial premises have not yet recovered from the previous recession, the consequences of which lasted for five years.

The commercial sector faces a deep crisis due to coronavirus. Covid-19 has led to the closure of stores for many weeks and, once they reopen, their future in a context of economic crisis is uncertain. This new challenge comes at a time when the sector had not yet recovered from the last crash in Spanish real estate, which started in the third quarter of 2008, when the average prices of commercial property sales reached their peak and which last for five long years, according to data from the Brainsre big data real estate platform.

“From the moment before the explosion of the real estate bubble in 2008 until the end of the decline, the average price of commercial establishments decreased from €1,922/per square metre to €1,294/square metre, whereby losing 32.7% of their value; and the fall in prices lasted 5 years, from the third quarter of 2008 when prices reached their peak, to the third quarter of 2013 when they bottomed out”, says Laura López, Data Scientist at Brainsre.

From the lowest point reached during the previous crisis, the price of commercial establishments -be they on the high street or in shopping centres- has remained practically constant for the last 6 years, with a slight drop of just 1%. According to data from the College of Registrars, at the end of 2019, the average transaction price of commercial premises amounted to €1,277/square metre, well below the more than €1,900/square metre reached at the height of the boom.

“As we can see in the graph, there was a sharp initial drop in prices between the third quarter of 2008 and the fourth quarter of 2009, but the most notable drop occurred between the third quarter of 2010 and the third quarter of 2013. Prices were more stable in the following years with just slight ups and downs. It was not until 2018 when the lowest price of the last 15 years was recorded: €1,257/square metre”, says López.

By area, the autonomous regions with the highest average transaction values in the moments prior to the outbreak of the previous crisis were Madrid, where tenants paid an average of €3,310/m² for a store; País Vasco (€2,431/m²); the Balearic Islands (€2,228/m²); Cataluña (€2,211/m²) and the Canary Islands (€2,152/m²). All of these regions, with the exception of the País Vasco, reached their maximum prices between the third and fourth quarters of 2008. In the case of the País Vasco, prices peaked in the third quarter of 2010.

“Unlike other types of assets, in the case of retail, the regions with the most expensive products were not necessarily those that experienced the greatest falls. In this way, the Community of Madrid, a region with some of the highest prices, was the one that showed the largest range of prices between its minimum and maximum”, highlights the analyst from Brainsre.

At the end of 2019, commercial premises in almost all of the autonomous regions were very close to their lowest average values, although there were a few exceptions, such as the Canary Islands and Navarra, which had already recovered 26% and 20%, respectively, of the value lost during the crisis. Many regions were actually below the minimum values they registered during the crisis, since prices have continued to drop, albeit at a slower rate, in recent years. Such was the case of Galicia, Extremadura, Andalucía, Castilla y León, Aragón, Murcia, País Vasco and Cantabria.

The impact of the fall and recovery

As a consequence of the 2008 crisis, all regions experienced a drop of between 30% and 45% from the maximum values that they had reached. The regions that experienced the greatest drops in their average transaction prices were La Rioja, where the price of commercial premises fell by 45%; Aragon, with a decrease of 43%; Asturias, down by 42%; and the Community of Madrid, where commercial premises lost 41% of their value.

“La Rioja, which was the most affected region, went from having an average value of €1,470/m² in the first quarter of 2009, to €807/m² in the second quarter of 2015. Its prices then underwent various ups and downs over the following years to reach the current value of €893/m², which represents a recovery of 13% of the value lost during the crisis”, says Laura López. On the contrary, those that were less affected in terms of €/m², because the drops in value were less, were Andalucía (29.5%), Cantabria (29.8%), Galicia (30.8%) and País Vasco (30.9%). All of them reached their minimum levels during the crisis between 2013 and 2014 ”, she adds.

The regions that have recovered by the most following the last crash are the Canary Islands, whose commercial asset prices have increased by 26% in recent years; Navarra, which has recovered by 20%; La Rioja, up by 13%; the Balearic Islands (12%) and Asturias (also 12%). In the case of Cataluña and the Community of Madrid, commercial premises have only recovered 7% of their value, since their prices have been very stable since 2013.

“In Galicia, Extremadura, Andalucía, Castilla y León, Aragon, Murcia, the País Vasco and Cantabria, not only has there been no recovery in prices, but values ​​have continued to decline following the crisis years, and so current values ​​are actually even lower” .

The areas around Madrid are the most affected

By province, those that saw the greatest impact on the price of their commercial premises after the crisis were Ávila (68%), Guadalajara (66%), Huelva (62%) and Segovia (61%). “All of them, except for Huelva, share the feature that they are provinces that are closely linked to Madrid. In the case of the province of Huelva, its presence is exceptional amongst the most affected, since most of the regions in Andalucía were amongst those that suffered the lowest falls.

In this way, Ávila reached its maximum price in the third quarter of 2009 with a price of €1,714/m2 and its lowest value in the fourth quarter of 2014, with €540/m2. Guadalajara recorded its maximum value in the first quarter of 2008, but it was not until the second quarter of 2017 when it saw its lowest value, of €663/m2.

On the contrary, the provinces that registered the smallest decreases were Granada (23%), Teruel (29%), Gipuzkoa (32%) and Cantabria (32.5%).

“It is also interesting to see how the various regions have been recovering since they left the 2008 crisis behind. Amongst those that have recovered by the most, by more than 30%, are Ourense, Toledo, Huesca and Albacete. In the case of the Galician province, it is surely due to the good performance of shopping areas such as the sought-after Rúa do Paseo in Ourense and the old town of Allariz”.

Some provinces have not shown any signs of recovery in their commercial prices; at the end of 2019, they had lower minimum values ​​than those recorded during the crisis. Such is the case of Zaragoza, Teruel, León and Murcia. “It seems that many of these provinces have not yet bottomed out, like the case of Jaén, where prices have fallen steadily since 2008, until the end of 2019, when the lowest value in the last 15 years was recorded.”

Duration of the fall

Unlike the coronavirus crisis, the 2008 crisis reached different regions in Spain at different times, with retail prices falling earliest in Castilla-La Mancha, the Community of Valencia and Galicia during the first 2008 quarter. Meanwhile, Asturias was the last to see price falls, since its prices didn’t begin to decrease until the first quarter of 2011, almost three years later.

In terms of the communities with the most activity, retail properties in Madrid were the ones that began to suffer first, since prices of commercial premises there began to drop in the third quarter of 2008; prices in Cataluña started to decrease in the fourth quarter of 2008 but the price falls came later in the País Vasco, in the third quarter of 2010.

The Balearic Islands was the region where the recovery from the crisis began first since prices there bottomed out and began to rise during the second quarter of 2013, after almost 5 years of decline. Behind the Balearic Islands, the Canary Islands, Madrid, Cantabria and País Vasco were the regions whose prices recovered next. In the case of Cataluña, its prices picked up in the first quarter of 2014, after just over 5 years of decline.

“If we talk about the duration of the last crisis, from the beginning until the end of the price decreases, we see significant asymmetry between regions, from the shortest, 3 years in the País Vasco, to the longest, 7 years in Asturias. Madrid, the Balearic Islands, the Canary Islands and Cataluña, all regions where prices peaked above €2,000/m2 in 2008 (Madrid alone exceeded €3,000/m2), were among the places with the least prolonged falls, of between 3 and 5 years and with price decreases of between 30% and 40%. However, the islands have recovered by the most, but, surprisingly, the País Vasco has not yet recovered, since, at the end of 2019, its commercial premises had an average value of €1,493/m2, compared to their minimum levels in the fourth quarter of 2013 (when the fall in post-crisis prices came to an end) of €1,681/m2”.

By province, there are even more notable differences, since in places such as the provinces of Jaén and Valencia, the price falls lasted for between 10 and 11 years, whereas in Zaragoza, Palencia and the Balearic Islands, they lasted for just over four years.

In this context, it is impossible to know how long this new crisis will last. However, many indicators are already showing that the regions where the coronavirus is having the significant most economic impact are those regions that are most dependent on tourism, especially in the short term.

“Although it is true that if the experience of the 2008 crisis has shown us anything, it’s that the important tourist centres such as the Balearic and Canary Islands, Málaga, Alicante and Valencia have undergone a considerable recovery after leaving behind the 2008 crisis”, says López.

How did 2019 end?

The autonomous regions that led the ranking with the highest prices per square metre at the end of 2019 were: Madrid, the Canary Islands and the Balearic Islands. All of them exceeded €1,500 per square metre, but the only one above €2,000/square metre was Madrid (at €2,047/square metre, to be precise). Although, that figure only represented a recovery of 7% with respect to minimum prices there.

By contrast, those that ended the year with a lower average value were Extremadura, Murcia, Castilla La Mancha and Castilla y León, all below €900/m2.

The average price in almost 70% of the provinces did not reach €1,000/square metre, even though the maximum price before the crisis exceeded that value in all of them. The provinces that closed 2019 with the highest average transaction values were Madrid, Las Palmas (€1,697/m2), Gipúzcoa (€1,601/m2) and Barcelona (€1,592/m2).

And those that ended 2019 with the lowest average transaction values were León, Teruel, Castellón and Jaén. As we already mentioned, prices in Teruel and Jaén bottomed out in the fourth quarter of 2019.

In summary, retail prices have been practically frozen since the third quarter of 2013 (i.e. for the last 7 years) in almost all of Spain, with just very slight increases observed. In addition, there are areas where the average transaction value is currently lower than it was after the 2008 crisis, so it seems that they have not yet bottomed out. Now, in the Covid-19 context, we do not know the magnitude of the impact of this crisis on retail prices in Spain, but what we do know for sure is that it will not be positive.


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