Institutional investors are poised to put the Spanish real estate market back on their radar, but they shouldn’t expect bargains, Henderson Global Investors has said in a new report.

In its latest series of property outlook reports for 2011, Henderson Global Investors concludes that opportunities for institutional investors in the core and core-plus arena exist in Spain, but these tend to be few and far between. Operators with inside knowledge and good experience of asset management are best equipped to unlock latent value and maximize returns, the report concludes.

The report highlights the retail sector as possibly offering better opportunities for cross-border investment but notes that potential investors need to ditch their preconceptions of country risk and approach the market from a bottom-up perspective, on an asset-by-asset basis.

Andy Schofield, director of Research for European Property at Henderson Global Investors, comments: 'The pricing gulf between prime and secondary shopping centres will remain for years. At present, good secondary offers potential opportunities for core plus investors, but is difficult to access. Further up the risk curve, the value-add space has been more or less vacated, suggesting equity players with more risk appetite could perhaps negotiate more favourable terms with struggling vendors. Stock selection is critical, so access to local knowledge is highly recommended.'

Turning to the office sector, the report points out that competition to buy buildings on Madrid's prime pitch is intense, especially for lot sizes under EUR 50 mln. Institutional investors are not able to compete with domestic investors, particularly family offices, who are willing to overlook short lease terms and over-rented positions in order to access a market they were largely priced out of during the boom.