Madrid – a global retail destination!

Madrid is becoming a global retail destination, competing with London and Paris, what’s behind the transformation?

28th April 2015

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Madrid is becoming a retail destination, competing with London and Paris, why is that?
In late 2013, the local authorities of Madrid promoted retail tourism as a strategy to boost growth following almost four years of recession.  The initiative was to promote the city as a pure shopping destination and position Madrid as a benchmark in dominant tourist markets, especially amongst Asian visitors who usually target London and Paris as the top destinations for shopping.  With this in mind, the authorities have improved public amenities as well as the public realm beyond the luxury districts.  One of the initiatives was to install LED screens to mimic the flavour found on Piccadilly Circus in London and Time Square in New York echoing also what Asian tourists usually see in Hong Kong, Shanghai and Beijing.

Since 2014, Madrid has received an average of 5 million foreign visitors a month without being dependent on the summer season like other Spanish locations. Tourists spent a total of €1.3 billion in 2014. Over the past six months to March 2015, the number of foreign tourists was 25% higher than in early 2013. Today the greatest numbers visiting Madrid come from China and the US, followed by the French, the British and the Italians. The strategy of the local authorities to attract Chinese visitors has so far been a real success. The international fame of Spanish fast fashion retailers such as the Inditex Group brands (Zara, Pull & Bear, Massimo Dutti etc), Desigual, Mango and Bimba & Lola have definitely helped the strategy of the local authorities. And as most of the purchases are related to these Spanish brands, the anticorruption law of the Chinese government has not affected retailers in Madrid like it has affected luxury retailers in Paris. In addition, these famous Spanish brands remain 20% to 30% cheaper in Spain than in France or Italy. This in part explains the high share of French and Italian shoppers in Madrid. Finally, the fall of the euro is making Madrid an attractive place for both British and American shoppers: the European currency has lost 15% against the sterling and 20% against the dollar since 2014.
What has been the impact on the property market?
Many retailers have expanded in Madrid following the recovery but also to benefit from the tourism bonanza. This increased demand has fuelled rental growth in many locations. In Avenida Preciados where zone A rents are the highest standing at €2980 per m² per year, rental values have increased by 6% since late 2013. The street has seen new entrants such as the delicatessen brand Enrique Tomas, the colourful Desigual, the Canadian cosmetics brand Mac as well as a new flagship store for H&M. In Avenida Serrano, known as the “Champs-Elysées” of Madrid, where zone A rents are around € 2700 per m² per year, rents have increased by 5% y-on-y. In Ortega y Gasset, similar to Avenue Montaigne in Paris, where Chanel has just opened a new flagship store, rents are expected to rise soon. Finally, rents in Gran Via, considered as the Rivoli or Oxford Street of Madrid, have surged by 30% since 2013. The news that Primark will open a new flagship store in autumn 2015 has made this mass market street a key location for retailers in search of high levels of footfall: zone A rents are now at €2400 per m² per year compared to €1520 in 2009..

From an investment perspective, the changing retail landscape can provide opportunities for local investors that can identify future retail thoroughfares. In 2014, according to IPD, total returns in Spain were at 9.7%, 6.4% from income returns compared to 3.1% from capital returns. Like other large cities in Europe, Madrid is now expensive but on the positive side it will definitely offer one of the strongest income returns in Europe in the medium term.

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