Madrid to see more foreign investor activity in 2010: Savills

Madrid's office investment market is set to witness further foreign investor activity in 2010 as the trend for sale-and-leaseback transactions continues beyond the banking sector, according to property adviser Savills.

Sale-and-leasebacks, which accounted for 33% of the Madrid investment market in 2009, will continue across all sectors and these typically larger sales will attract specialist foreign buyers, predicts Savills. Research shows that only 9% of total investment sales in 2009 were by foreign investors but this figure is expected to grow as international parties acquire larger lots that domestic buyers cannot fund.

Meanwhile the domestic players, who have bid aggressively on typically smaller CBD office lots at sub 6%, are expected to continue to dominate the CBD market in 2010 as they force further downward pressure on yields.

Jose Navarro, deputy managing director of Savills Spain, commented: 'Private national investors will continue to dominate the CBD and force yields downward. This will lead international funds to focus more on decentralised prime locations, where lot sizes will automatically select the investors.'

Despite the anticipated foreign investor interest, the overall outlook for the Madrid market remains cautious. Investment volumes at year-end 2009 were 62% lower than that of 2008, and although office leasing activity exceeded expectations, it was 35% less than that of the previous year. Rents, which are between EUR 28-29 m2/per month, have fallen 24% year-on-year but the pace of decline is starting to slow, according to Savills.