Madrid to see more commercial property investment from foreigners

 

Commercial investment in Madrid is expected to see an increase in foreign investor activity in throughout the year as the appetite for sale-and-leaseback arrangements develops away from the banking sector, according to property adviser Savills.

Sale-and-leaseback contracts accounted for 33% of the investment market on Madrid last year, and are expected to continue across all sectors and these typically larger sales are predicted to attract specialist foreign buyers. Last year just 9% of total investment sales was believed to be by foreign investors, but this figure is expected to grow as international parties acquire larger lots that domestic buyers are unable to finance.

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.