Market
The slowdown in economic growth which began in 2007 continued in 2008, taking the growth rate to an average of 1.2%, just above the Euro area average of 0.7%. The consequences of the credit crunch had become evident in Spain even earlier because the crisis coincided with a series of growing structural imbalances; for example, the correction in the housing market, which had long been expected, became painfully evident. Economic growth in the last two quarters of the year was negative, plunging the country officially into recession. The decline in consumer confidence also continued in 2008, mainly because of the more negative economic sentiment, and was not helped by the rapidly rising unemployment rate, which rose from an average of 8.5% in 2007 to 10.8% in 2008. The unemployment figure climbed particularly sharply in the last two quarters, partly because the two most important sectors for employment were hard hit by the recession, namely the construction and tourist industries. All these factors meant that consumers kept a tight rein on the purse strings, and the growth in consumer spending was a good deal lower than in 2007, at 0.9% versus 3.5%. Inflation stood at 4.1%, rather higher than in 2007 (2.8%).
The retail sector performed less well than in the previous year, with a 2.5% drop in sales. The non-food sector was harder hit than the food sector, with sales of home-related products particularly affected, reflecting the worsening housing market. Small retailers struggled. Demand for good retail space held up, however, enabling market rents at good locations to remain stable whereas rents generally were under downward pressure.
A large number of new projects were again transferred from the pipeline and commissioned in the year under review, boosting the amount of available retail space once again. Regional differences remain in the range of stores available, and in some regions there is fierce competition between different projects. That competition has been heightened by the changing economic circumstances, leading to the opening of more new projects in secondary locations, sometimes with higher vacancy rates and lower rents than anticipated. The present project pipeline remains one of the biggest in Europe, though it is likely that many projects will be deferred or cancelled in the light of the greater difficulty in obtaining finance and the lack of healthy demand.
Source: Annual Report 2008, Chapter Review of operations, page 99 (PDF, 2,1 MB)
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