Spanish Retail Development
Is Still Humming

Spain has become one of the favorite locations of international retailers. The country's strong economy and a rise in both consumer spending and gross-domestic-product growth have attracted luxury stores like France's Louis Vuitton and U.K. retailer Burberry as well as global chains.

For example, German electronics chain Saturn, part of Metro AG, recently entered Spain. The attraction is that the country already has one of the highest rates of shopping-center space per capita in Europe -- 235.8 square meters per 1,000 inhabitants, according to real-estate advisory firm Cushman & Wakefield Inc.

International retailers use that measure to determine the strength of a market's customer base and other shopping trends. Spain's rate is higher than the European Union average of 186.3 square meters, but lower than Norway's, 632.5 square meters, but higher than Germany's 146.9 square meters.

Spain's economic growth has outstripped that in many other European markets in the past five years and is proving a big draw for both investors and retailers, says Peter Gold, head of crossborder retail in Europe, the Middle East and Africa at CB Richard Ellis in London. Consumer spending in Spain is expected to grow by 2.7% this year, compared with 2.1% in France, 1.8% in Germany and 1.7% in the U.K., according to the Organisation for Economic Co-operation and Development.

These statistics also have helped attract popular Irish discount retailer Primark Stores Ltd., a subsidiary of diversified food and retail group Associated British Foods PLC. It will open four stores in Spain -- one in Madrid, two in Oviedo and one in Bilbao -- in the second half of the year, according to Geoff Lancaster, head of external affairs at Associated British Foods. Primark entered the Spanish market in 2006 with a store in Madrid.

"The attraction of Spain is that, demographically, it is very similar to our home market, Ireland, so we thought it would offer good opportunities for us. And it does. Although we've been very successful in the U.K., our sales per square foot are actually higher in Spain than in Ireland or the U.K. We could envisage 50 stores across Spain in the medium term," Mr. Lancaster says.

A CB Richard Ellis survey last week of 250 retailers with stores in many countries found that 51% had a presence in Spain, which was second only to the U.K., where 55% have operations. Retailers surveyed included the U.K.'s Marks and Spencer Group PLC and U.S. electronics chain Best Buy Co. Spain's score was higher than Germany's 47%, China's 40% and the U.S.'s 39%. (The U.S. can be a hard market for international retailers to crack, because of the strength of its domestic brands.)

Retail developers are still active in Spain despite the global credit crunch. After Russia and Poland, Spain has the biggest shopping-center development pipeline in Europe, with 1.27 million square meters of space due to open by the end of the year, according to Cushman & Wakefield. By comparison, the figure for Russia is 4.64 million square meters, while the U.K.'s is 998,553 square meters.

But there are dangers associated with Spain's retail market, most notably oversupply. This is a growing problem in cities such as Valencia and in areas south of Madrid that have undergone a lot of retail development, says Manuel Martin, head of U.K. property-fund manager Henderson Global Investors in Spain.

Nevertheless, there are still sales of retail property, although they are slowing as in most places in Europe.

One big shopping center being planned is Atlantys in northern Madrid. At 180,000 square meters, it is expected to be the biggest shopping center in the city when it opens in 2012. Construction is due to start next year. It is being developed by Spanish real-estate groups Riofisa and Metrovacesa SA at a cost of around €466 million ($715 million). Riofisa is part of the Spanish property developer Inmobiliaria Colonial SA, which has seen its value plummet in the past six months because of concerns over its high level of debt to fund expansion, making it ripe for a takeover.

On the deal front, Henderson Global Investors, part of Henderson Group PLC, in January acquired a 41% stake in the Nueva Condomina shopping center in Murcia, in southeastern Spain, for €143 million. Listed Spanish real-estate group Reyal Urbis SA announced last week that it intends to sell properties in Spain this year with a combined value of about €300 million. It is in the process of selling a shopping center on Madrid's prestigious Paseo de la Castellana. The ABC Serrano center has a price tag of about €130 million, according to Alex Barbany Fernández, director of investment at CB Richard Ellis in Barcelona.

Email your comments to rjeditor@dowjones.com.