Spain's property market is experiencing a revival of interest among foreign investors keen to get into the game before recovery takes hold.

Spain's property market is experiencing a revival of interest among foreign investors keen to get into the game before recovery takes hold.

While domestic investors continue to dominate the market in Madrid, German institutional funds have returned to the sector, joining a string of new buyers in this area including South American, British and Canadian parties.

According to Savills' latest office report, the Madrid office market is 'beginning to awaken from its slumber' as it regains activity with second-quarter volumes reaching €155 mln, far exceeding the €45 mln recorded over the same period last year. First-half figures have also increased four-fold to over €200 mln compared to the year-earlier period.

Around 59% of deals in H1 2013 were carried out by Spanish investors - the lowest percentage recorded over the past five years. Deka completed the purchase of an office building on the outskirts of Barcelona’s CBD, while Union Investment acquired Hotel Raval, indicating that the Germans are back in the market.

'We are seeing a number of institutional investors from Germany back in the market looking for quality product; the recent transactions from Deka and Union Investment may mark the beginning of a series of deals which should put life back into a market that has been dead for the past six quarters. Banks are also considering lending again, although conditions are still tight,' commented Manuel Martin, head of property for Spain at Henderson Global Investors.

He added: 'Over the last three months, the investor profile has moved from private equity/opportunistic funds to traditional core and core-plus.'

South American investors are also looking at the market. IBA Capital Parters recently received mandates from several South American investors to look for core properties in Madrid and Barcelona.

‘There is strong interest from South American investors who wish to take advantage of Spain's market situation by investing in core assets which will generate capital gains when the market recovers,' IBA's co-founder and partner Sergio Garcia told PropertyEU.

Achievable rents in the CBD are running at €24.50 per m2/month with minimum rents registered at €4 and €5 per m2/month in an office building on an industrial estate. 'Rents in the CBD are reaching their lowest level seen in the recession and if history repeats itself, as it did in the mid-1990s, rents may well climb slightly at the end of 2013 and 2014,' added Gema de la Fuente of Savills research.