M&G Real Estate has spent €175m on a central Madrid office asset, its first deal in Spain.

The investment manager bought the building for its open-ended, core European strategy, which is backed by UK and European pension funds.

The purchase is the fifth for the fund since March, taking capital deployed to €360m. The firm has also bought in Denmark, Italy, Germany and France for the fund.

Fund manager Simon Ellis said that, despite Spain’s high unemployment levels, capital values and rental levels in Madrid’s office market had reached their low point.

“Spain is returning to growth, and, across Europe, it’s a general theme that cities are offering good investment prospects,” Ellis told IP Real Estate. “We’re deal focused, concentrating on core locations.”

Ellis said the “prime, well-insulated” asset – at its peak worth €215m according to local media reports – was bought out of administration from four banks.

“We agreed the deal at the end of last year,” he said. “There’s continued investor interest in Spain and it is more challenging, but there’s still a yield gap when compared to similar locations in France and Germany.”

The 35,000sqm asset, in central Madrid’s Calle Ríos Rosas, will be refurbished over the next three years before being let to communications firm WPP as its headquarters on a long-lease.

In March, the firm returned to Italy after a 10-year hiatus, buying a high street retail development in Milan. The real estate fund management arm of M&G Investments bought the holding company for the 3,745sqm asset from developer PRIA.

The same month, the firm invested €33m in a high street retail asset in Copenhagen.

M&G this year also bought retail assets in Germany and Scotland. The investment manager paid €51.9m for a 23,000 sqm retail park in Dreieich, near Frankfurt.