|There are already signs that Spain’s residential property market is recovering and now a new report shows that its commercial markets are also growing.International real estate advisor Savills is predicting CBD office yields in Madrid will move from 5% to 4% and 4.5% for super prime properties, as a lack of good quality stock puts pressure on pricing.
This follows strong investment volumes in Spain’s office market during 2014 in which €2.8 billion was transacted, triple the €990 million total in 2013.
The firm states that in terms of location, 60% of investment was made in Madrid, 30% in Barcelona and the remaining 10% in other locations throughout the country.
Savills reports that the growing amount of demand and the lack of supply continues to push achievable yields down in the CBD and the main business areas. Prime yields at the end of the year moved in 100 basis points, secondary areas 75 basis points and out of town locations saw a change of 50 basis points.
‘Investors preference for Spain’s more mature market of Madrid is undeniable, accounting for a total of €1.65 billion. But the lack of good quality stock is putting pressure on yields,’ said Luis Espadas, director of investment at Savills Spain.
‘The yield in the CBD stands at 5%, and for super prime properties could achieve between 4% and 4.5%,’ he added.
The firm finds that SOCIMI, the Spanish equivalent of REIT’s, were very active in the office market, with 27% of their total capital being invested in commercial property and 76% of that total in offices.
‘Whilst the SOCIMI and domestic investors were very active in 2014 this year we predict we will see large Latin American investors capitalizing on opportunities in the Spanish office market,’ said Pablo Pavia, director of investment at Savills Spain.
The Savills report also states that take up in the office market at the end of 2014 was 382,000 square meters, some 2.5% less than the previous year. However, 2013 take up was heavily distorted by the Vodafone letting of 50,000 square meters, and discounting that letting take-up grew 12% on the previous year.
Additionally, it points out that there are a number of large space requirements currently in the market, several of which are seeking space exceeding 5,000 square meters.
‘Thanks to signs of a recovery in Spain some occupiers are more willing to sign pre-lease agreements on speculative space in the CBD which in term is prompting major market players to carry out speculative developments. The increase in take up activity will cause rents in the best properties to continue to rise through 2015,’ said Ana Zavala, director of office agency at Savills.
According to Savills rents in the CBD are currently in excess of €25.50 per square meter and could reach €28 per square meter in 2015 given continued strong take up. The firm also predicts landlord will continue to undertake refurbishment projects in 2015, with three quarters of new space in the pipeline for the upcoming year related to refurbishment projects.