Madrid's office investment market is set for further foreign investor activity in 2010 as the trend for sale and leaseback transactions continues beyond the banking sector. These larger lot sizes will price out domestic investors according to international property advisor Savills.
Savills reports that sale and leasebacks, which accounted for 33% of the investment market in 2009, will continue across all sectors and these typically larger sales will attract specialist foreign buyers. 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, says: "Private national investors will continue to dominate the CBD and force yields downward. This will lead international funds to focus more on decentralized prime locations, where lot sizes will automatically select the investors."
Despite anticipation of foreign investor interest in the market this year, the overall outlook 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. However rents, which are between 28-29 m²/per month, may have fallen 24% year on year but Savills states price falls are starting to show a gradual slowdown.
Alberto Gomez adds: "The surge in lettings at the end of 2009 was a result of the 'end of year effect' and whilst it was a triumph for the market we expect a gradual slowdown of negative price growth, as there is still considerable supply to enter the market."
The Madrid office market is set to see 400,000 m² of supply released to the market in 2010, over 40% of which will form the two towers completing Four Towers Business District as well as the third phase of Rivas Futura. Torre Cristal and Rivas Futura will be released vacant totalling over 100,000 m².