Spanish office investment market may pick up in Q4

First-half investment in Spanish office properties was at its weakest level in over a decade but the market could pick up in the second part of the year as a number of transactions are currently being negotiated.

'We could see quite a lot of activity in the fourth quarter because several office buildings are under offer at the moment and investor's confidence seems to be coming back,' David Brown, director of Savills' investment team in Madrid, told PropertyEU in an interview. He added that 'up to 10 deals could be closed by the end of the year.'

Office investment levels were down by around 70% in the first half compared to the same period a year before. Brown noted that as little as 12 transactions were recorded in the Spanish office sector in the first six months of 2009, for a total investment of EUR 380 mln. Similarly to other European markets, investors in Spanish real estate are focusing on prime real estate as a way to protect themselves from further rental falls.

'We feel that the price correction for prime real estate is close to reaching the bottom and will do so by the end of the year,' Brown forecast. 'For the secondary assets this is more difficult to predict but in general we believe that the severity of the market changes has not been realised yet.'

In the occupational market, take-up is at its lowest level since 2000, when Savills' research team started to collect data in Spain. Office letting activity in the Spanish capital came in at just 121,000 m² in the first half of the year, which is around 60% below 2008's volumes. Savills is expecting office take-up in Madrid to be around 225,000 m² for the whole of 2009, which compares to 550,000 m² a year before.

Prime office rents have fallen by over 25% over the past 18 months. Brown: 'Top office rents still have a lot to fall before we could talk of recovery.'