Madrid to lead european office markets

Photo: David Hurt

Spain is already enjoying an economic recovery, but now, the positive mood has extended to the Spanish capital. Prime office rents increased 14 per cent in the first half of 2014, according to Knight Frank, to €28 per sq m per month. 

Office investment has also risen "sharply", with volumes totalling €700 million in the first six months of the year, already almost double the €400 million invested in the whole of last year.

Knight Frank now forecasts that Madrid will lead Europe's office markets in the coming years. Indeed, at a recent investor breakfast hosted by Knight Frank, a poll of the 200 attendees showed that Spain was the top target country for investment, chosen by 26 per cent of the audience, knocking the UK off the top spot.

There has been limited development over recent years, which has helped to stabilise the vacancy rate.

Humphrey White, Head of Commercial, Knight Frank Madrid, says: "Overall office vacancy stands at 11.5 per cent, however, Grade A supply in Madrid’s Centre stands at just 2 per cent; this, coupled with a 25 per cent increase of take up year-on-year, will lead to significant rental growth in the capital. We are also seeing a polarisation of the office market as tenants become more demanding, leading to a flight to quality – the best within the CBD dramatically outperforming others in the immediate surroundings."

Darren Yates, Global Head of Capital Markets Research, Knight Frank, adds: "As 2015 approaches, the combination of a more active occupier market, limited development pipeline and low rents offers a realistic prospect of strong rental growth. In turn, this will further increase Madrid’s appeal to investors, leading to yield compression and enhanced growth in capital values. The investment case for Spanish commercial property is compelling."