Investors looking for growth should head for Southern Europe, delegates heard at PropertyEU’s Investment Briefing on the region which was held in London on Thursday at the City offices of TH Real Estate.

office rents rev up in southern europe

Office Rents Rev Up in Southern Europe

The economy has picked up, most noticeably in Spain but also in Italy, and the forecast is for growth to continue over the next few years. The good news is having a positive  impact on the real estate market, with investments picking up and rental growth becoming a reality.

‘Spain is now the fastest growing economy in Europe, which would have been difficult to imagine two years ago,’ said Stefan Wundrak, head of European research at TH Real Estate. ‘The positive momentum has been reflected in the market, as investment volumes in Iberia have defied the downward trend seen elsewhere in Europe.’

Iberia recorded a 20% increase in investment volumes last year, in contrast to a 17% fall in France and a 15% decrease in Germany. In Italy investment volumes fell by 11%, but ‘the reduction was due more to lack of supply than lack of demand,’ said Wundrak.

Southern Europe is witnessing a two-track evolution, the briefing heard: one that relates to changes that are happening now, and one that focuses on future potential. The office sector is where rental growth is likely to come through most quickly, Wundrak said: ‘If you look at office rental growth then Southern Europe is quite clearly the place to be. Madrid and Milan are recovering well and strong rental growth is expected in both markets in the next five years.’

Untapped potential
The story about Southern European cities is also one of - as yet - unrealised potential. The bad news is that these cities do not figure in statistics on technological innovation, internet access, e-commerce, number of start-ups and patent applications. Northern cities tend to dominate all the rankings, and this matters, said Wundrak, ‘because a lot of growth in Europe has been generated by technology. The Southern European cities are lagging behind’.

The good news is that the picture is changing fast and southern European cities are catching up. ‘Tech office take-up is increasing in all the major cities, from Milan to Rome and from Madrid to Barcelona to Lisbon, at a rate of 15-20% a year,’ said Wundrak. ‘Southern Europe has a lot more to do, but there is evidence that good things are finally starting to happen.’

Tech companies are increasingly choosing Southern European cities because of lower rents and better quality of life, and this employee-driven trend is creating a virtuous cycle – stimulating the economy and generating demand in the real estate market.

Lisbon, for example, won the race to host the Web Summit last year, an event that had been held in Dublin for the previous seven years, and it is reinventing itself as a leading tech hub. Apple has decided to open its first academy for software developers in Naples. As unlikely as it may seem, the next Silicon Valley could be in Southern Europe.