Positive outlook for Spain's market - King Sturge

The commercial property market in Spain continues to be attractive although a lack of transparency and high-quality office space continue to remain obstacles according to a report released by property consultants King Sturge. Booming retail growth is expected to slow although it will continue to outperform over the next five years. High demand from international and domestic retailers has spurred high rates of construction, with 1.9 million m² of new shopping centre space due on the market this year and a strong pipeline expected in the years ahead.

Office stock in the capital currently stands at 13.5 million m². There continues to be a lack of high-quality space in prime locations, further accounting for a drop in vacancy rates to below 6%. The development pipeline is improving and an estimated new 500,000 m² is expected to be delivered in the next two years, primarily in peripheral areas of Madrid. As of the fourth quarter 2007 office rents in Madrid’s CBD reached EUR 492 per m2/annum and EUR 240 per m2/annum for prime out of town rents.

In spite of Madrid’s dwindling manufacturing base it is becoming increasingly important as a logistics hub, handling around a third of the country’s freight. Only a small portion of the city’s logistics supply is modern stock, resulting in low vacancy rates of 2.5% and the necessity for occupiers to secure pre-let agreements. Continued investor interest in the Spanish commercial market remains unmatched by available investment-quality product. The tendency for off-market deals has further hampered the investment market, with the few deals coming to the market producing very low yields.