Everything indicates that investment in the tertiary sector will mark a new record in 2017. The sustained growth over the last two years in the participation of Spanish investors account for 40% of the total volume compared to 60% of the foreign investment. This has led Engel & Völkers to forecast a record volume for this year, which will exceed the 11.9 billion reached in 2015.
Only in the first quarter were non-residential real estate transactions totalling 3.52 billion euros, out of which more than half were concentrated in Madrid and Barcelona. By sector, the retail and office segments continue to lead the investment and, while in the first it amounts to 1,495 million euros, in offices the figure has approached 900 million euros. This is a figure that has doubled since 2016. The hotel industry and logistics are the major players with 783 million euros.
Barcelona ahead of Madrid in number of transactions
Barcelona has been awarded as the city of the year. After capturing 20 of the 35 operations carried out, Barcelona has taken the lead in the last three years representing 20% of the 57%, surpassing Madrid for the first time as the main destination for investment.
"The price level of real estate assets in Barcelona remains 30-40% below the prices of other European capitals, making the city a suitable place for real estate investment," said Alberto Sarrias, CEO Of Engel & Völkers Commercial for Spain, Portugal and Andorra. "Sales prices are rising by between 5% and 10% per year, which means a return that can reach 15% for investors," he adds.
Commercial premises and buildings that are in need of renovation in the 'prime' areas of large cities are the assets most demanded by investors. However, there are differences according to the profile of the buyer. While investors prefer renovation buildings, offices and shopping malls, the private investor opts for local and small buildings.
Nationality also defines different types of investment within the Spanish tertiary sector. When foreigners are looking for short-term returns that the financial market does not offer, the national profile seeks to put their money in a safe and long-term investment. "In both cases, the quality of the property overrides the price because the clients are very knowledgeable about the market," says Jon Uriona, director of the industrial and investment division of Engel & Völkers Madrid.
Retail is the king of the sector. Among the strong growth registered, it is possible to emphasise the rebound registered in the operations of business transfer, especially premises that require restoration. In the case of Barcelona, the new plan approved by the City Council, which restricts the granting of licenses in the old town, has caused a considerable increase in the prices of the transfers of this asset profile. But even this higher cost has not slowed the number of transactions, which have increased by more than 15% compared to 2016.
A similar situation is experienced in Madrid, where "investors are willing to pay a higher price for a place where the facilities are in good condition and have all the licenses in order," explains Belén Bedate, director of the office And retail sector at Engel & Völkers Madrid.
The prices are very sensitive to the location, the characteristics of the property itself as well as the traffic flow. For this reason, the rental levels in the most commercial stretches of the main streets of the big cities continue with their upward trend.
In Madrid, rents can exceed € 250 / sqm per month on the most expensive streets like Preciados. Very close are exclusive roads such as Serrano and Gran Vía, where the rents
best places can rent out for around € 240 and € 220 / sqm per month, respectively. While in Fuencarral street rent is up to € 145 / sqm / month.
In other areas and more secondary streets, rents suffer very sharp declines in relation to the prime areas, greatly expanding the price range.
Large transactions such as the purchase of Torre Agbar by Merlin Properties for 142 million euros have enabled Barcelona to rank first in the Spanish office market. The volume in Barcelona reached almost 450 million euros in the first quarter compared to 40 million in the same period of 2016.
However, Barcelona is still suffering from a significant supply shortage in buildings and large office space which is expected to be extended, at least for the next few years. For this reason, in addition to the increase in leasing in the 22 @ district zone, income increases of at least 5% are expected for the next four years.
A bullish trend in line with the rise in rentals is also planned in Madrid, which Engel & Völkers places between 5% and 10%. It should be noted that the average rental price in the prime area has increased to € 29.50 / SQM / month.
Compared to the mega-operations seen in the City of Madrid, the leasing of offices in Madrid during the first months of the year has remained practically at the same levels of 2016, with no large transactions. Almost 50% has been in offices with areas between 300 and 700 sqm and only 16% in areas above 2,000 sqm.
The general rate of office availability in Madrid is around 12%, distinguishing between Central de Negocio (business centres), where availability is 9.5% to fall to 6.5% in the centre of the city. Outside the M-30 we find higher rates that reach up to 17% and reach 22% in areas on the border. Precisely the central area is the most demanded area, reaching 45% of total, which in the first quarter of the year has been quantified in about 115,000 sqm. Other areas with good levels of activity have been the A2 with a 25% leasing and the city centre (11%).
In Barcelona, the most requested areas for offices are centred in Paseo de Gracia and Avenida Diagonal areas, but the shortage of supply in this area has shifted recruitment to areas such as 22 @, where unemployment has gone From 17% in 2013 to the current 9%. During the first quarter of the year, contracting was distributed between the city centre and CBD (41%), in new business areas (33%) and the remaining 26% on the bordering zones.
"The office supply is increasingly adapted to the needs of the future user who is more demanding in terms of functionality, energy efficiency, services for their employees, etc. This, coupled with the growth of rentals, makes owners of office buildings consider it profitable to invest in improving their properties in order to get a good return on investment," explains Belén Bedate.
Among the most active sectors in the search for offices, the technological sector stands out. Although the most important operations of the first quarter of the year have been carried out by banking, professional services and public administration.
Engel & Völkers Commercial doubles its turnover
The strong operating activity between two and four million euros has enabled Engel & Völkers Commercial to witness double turnover in Madrid and Barcelona during the first half of the year. The sale and leasing of commercial premises in Barcelona are worth 4.4 million euros. These include office building in Mas Blau polygon in Prat de Llobregat as part of the normal business model managed by the company.
In the hotel segment, it is worth mentioning the French chain B&B hotel, Vigo, which is handled by Engel & Völkers. The prototype of econochic hotels has been a rupture in the hegemony of the local firms. The rental of the new offices in a prestigious international law firm in Beatriz Building in Madrid ( 29 José Ortega y Gasset Street), where the new tenant will occupy about 4,060 sqm, is worth mentioning.
Bilbao and Vigo, an investment of marked national character
Outside Madrid and Barcelona, the profile of the buyer in the tertiary sector is mainly national. "As long as investors demand for profitable assets, mainly in good areas of the city that guarantee investment and offer a profitability from 5%, sellers in cities such as Bilbao are mainly families with inherited assets," Explains José Antonio Álvarez, director at the Vizcaína office.
In Vigo, where the business park is very old and rarely adapted to the demand needs of clients, the rent of a central office can be around 6-10 euros / sqm / month depending on the location and the state of the property. (See pictures)
Engel & Völkers Commercial has a network of around 100 agents in the areas of investment, retail, office and industrial. It carries out all types of real estate asset investments throughout Spain. An extensive portfolio will be shown at the Realty Spain Fair, to be held tomorrow, 21st, and Thursday, June 22nd at the Palacio de Cibeles in Madrid.