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Madrid Q1 office investment quadruples year-on-year

According to Savills, approximately €200 million of transactions were carried out in the Madrid office investment market during the first quarter of 2014, against a volume of €50 million recorded in Q1 2013. The international real estate advisor highlights that this figure represents almost 53% of the total office investment volume recorded in Spain in this period, which reached approximately €350 million.

The firm attributes this partly to increased activity from international investors with its research showing that overseas buyers have increased their market share in Q1 2014 accounting for 66% of the Madrid office transaction volume in this period, against 54% in Q1 2013.

Luis Espadas, head of capital markets at Savills Spain, comments: “The improved economic outlook has caused international investors to turn their attention to Spain, and particularly Madrid, and take advantage of low capital values, high yields and potential rental growth in the short to medium term. In fact, due to a lack of product on the market, the increased turnover in Q1 does not fully reflect the extremely high demand we are seeing. This demand is making the sales process highly competitive.”

In terms of yields, Savills records prime CBD office yields at 5.5% and predicts that going forward these may contract to 5% for prime product in prime locations.

On the occupier side, the firm notes that total office take-up in Madrid reached approximately 105,000 sq m in the first three months of the year, representing a 35% year-on-year decrease. The research shows that this is due to a particularly strong first quarter in 2013 with several very large deals, including a 50,000 sq m letting by Vodafone. However, in terms of the number of deals Q1 2014 recorded an 8% increase and the firm predicts that going forward take up should total more than 400,000 sq m by year end, exceeding 2013 levels.

Gema de la Fuente, head of research at Savills Spain, comments: “We expect Madrid office take-up to pick up going into Q2 14 with occupiers looking to benefit from low rental levels. These have reached the bottom of the cycle in a number of areas and tenants will want to take advantage of this before they return to growth once again.”

Savills research shows that average vacancy rates on Madrid’s office market remain stable at 14%, in line with Q4 2013, and top CBD rents in the city remaining unchanged quarter-on-quarter, at €24.75 per sq/month.

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The above article is a repost from Property Magazine.