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Spanish commercial property market begins to revive


The first half of 2013 brought encouraging signs of improved confidence in Spain’s commercial property sector, according to Knight Frank’s inaugural Spain Commercial Property Market Review.

There was a sharp rise in the take-up of Madrid office space in H1, while increased numbers of investors have been actively seeking opportunities in the Spanish market. Madrid office take-up totalled 197,000 sq m in H1 2013, about 60% up on H1 2012. This was boosted by some large-scale transactions, most notably Vodafone’s agreement to take approximately 50,000 sq m in a new headquarters building at Avenida de América.

The Madrid office market is showing signs of increased stability. Prime rents were unchanged at €25 per sq m per month during H1, and may now have bottomed out after falling by more than 40% since 2008.

The office vacancy rate, which had been consistently rising since 2007, fell slightly in the first half of the year, as a result of a lack of new space coming to the market. Sentiment in the office investment market is also improving and prime yields in Madrid have stabilised, at 6.25%. Increased numbers of investors are seeking opportunities in Spain, attracted by relatively high yields compared with other European markets and encouraged by reduced fears of a Eurozone break-up. AXA, for example, agreed in June to buy a portfolio of Barcelona offices for €172 million, in its first deal in Spain since the onset of the financial crisis in 2008.

In the retail sector, activity remains affected by subdued consumer spending, but the best performing shopping centres have proved to be resilient and have maintained high occupancy levels. There was a lack of shopping centre investment transactions in H1, but a range of investors and developers are turning their attention to Spanish retail property. Interest in dominant retail schemes in secondary and tertiary cities is rising, with investors attracted by high yields and opportunities to generate increased returns through asset management.

Leasing activity in the Madrid logistics and industrial market improved in H1 2013, with take-up reaching 190,000 sq m and the vacancy rate falling by more than two percentage points, from 16.0% to 13.8%. However, investors remain cautious in this sector, and demand continues to be focused on prime assets let to secure tenants on long leases. Matthew Colbourne, international research associate, Knight Frank London, commented “Madrid office take-up in H1 2013 was boosted by some very large transactions, which may not be repeated in H2.

However, the fact that occupiers such as Vodafone have made such large space commitments in the first half of the year indicates that companies are realising that now may be the right time to act, as there are large office spaces available in Madrid at historically low rents. With few new office schemes in the pipeline, availability may begin to tighten and prime rents are unlikely to fall any further.”

Humphrey White, head of commercial, Knight Frank Spain, said “There has been a definite improvement in sentiment towards Spanish commercial property over the last six months, and an increasingly diverse group of investors are now looking for opportunities in Spain. Investors that have been present in recent years, such as opportunistic funds and private buyers, are now facing competition from a greater variety of institutional and international investors, including the German funds and Latin American buyers.”

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