In the third quarter of 2024, the Office sector attracted €392 million in investment, holding a 17% market share, ranking behind the Residential and Logistics sectors.
The total investment volume in Q3 2024 reached €2,254.3 million (+17.6% compared to Q3 2023), primarily driven by the residential sector, which, with a 20% market share, obtained €462 million.
Activity in the Office sector is gradually starting to recover. The accumulated investment volume for Q1-Q3 2024 (€1,257 million) matches the total office investment figures for the entire year of 2023 (€1,264 million), representing a 31% growth.
So far this year, the office sector has attracted €1,257 million, capturing a 16% market share, while the retail sector registered 23% (€1,801 million), the hotel sector 21% (€1,693 million), residential 18% (€1,384 million), industrial and logistics 14% (€1,110 million), and alternative assets accounted for 8% (€615 million).
Lease
The third quarter of 2024 has been the best since 2019 in terms of the volume of Take-up, with around 165,000 sqm. However, we should wait at least one more quarter to confirm the recovery of the office market, as the figures from Q2 were in line with the low leasing levels seen in the post-pandemic period. Although demand remains concentrated in areas within the M30, particularly in the CBD and City, limited availability and high rental levels in the CBD have pushed demand to seek alternatives in other areas. Notably, 55% of the transactions have taken place outside the M30 ring.
As for rents, Madrid's CBD continues to experience increases, with the prime rent reaching €38/sqm/month. Rents in decentralized areas have remained stable, while peripheral areas have experienced slight declines. Key transactions include a 22,000 sqm pre-lease for Cepsa’s headquarters in Mirasierra, a build-to-suit project by Monthisa; a 15,000 sqm lease by UNIE for educational use on Avda de la Ilustración; 15,000 sqm leased by the Administration in Chamberí; and 8,000 sqm by Grupo Gestamp in Madnum.
In Barcelona, the Take-up reached 48,000 sqm, a moderate figure compared to previous quarters. Limited availability in the CBD and City areas shifted 70% of leases toward decentralized (22@ and Zona Franca) and peripheral areas (Esplugues, San Cugat, and Cornellà). Prime rents in the CBD saw slight increases, reaching €30/sqm/month, while rents in decentralized areas remained unchanged, and peripheral areas recorded mild declines. Companies show a strong preference for central locations, especially the CBD, where vacancy rates are low. New developments are concentrated in the 22@ District and Zona Franca, with an availability rate of 11.5% and a prime yield of 4.75%.
Investment
Madrid remains the top choice for investors, capturing 52% of office investment, followed by Barcelona with 47%. Investor interest is largely focused on Grade A and ESG-certified buildings in the CBD and City areas. Within Madrid’s M30 ring, the focus is on core-plus and value-add opportunities that offer growth potential with reduced commercial risk exposure, as well as core opportunities in more peripheral locations. Peripheral areas in Madrid show high vacancy rates, with much of the stock on offer, prompting investors to seek properties in these areas for potential conversion to alternative uses, primarily flexible living and hospitality.Financing costs decreased this quarter. The Euribor has fallen by 80 basis points since the beginning of the year, with further declines anticipated in the coming months. Alongside the decrease in the Spanish 10-year bond yield, this trend is expected to stimulate the market and lead to yield compression. The prime yield in Madrid stands at 4.5%, down 20 basis points from its peak in Q4 2023. In Barcelona, the prime yield is at 4.75%, following a 15-basis-point compression.
Key Transactions
The most significant transactions in Q3 2023 include:
- In Madrid, Zurich sold a 12,000 sqm office building on Calle Alcalá to Besant Capital, Blasson, and Latam Capital Advisor for €100 million.
- In Barcelona, Blackstone completed the sale of an 18,125 sqm office building in the Zona Franca to El Consorci for €100 million.
Contex
All eyes remain on the monetary policies to be implemented by the European Central Bank (ECB). In response to the slowdown in inflation and the deceleration of economies in the euro area, particularly in Germany, the ECB lowered its official rates in June and September, bringing the new reference rate to 3.65%. Given the positive trend in the Consumer Price Index (CPI), it is expected that the ECB will continue this trend during the last quarter of 2024 and into 2025.
In September, the Fed reduced interest rates by 50 basis points, bringing them to 5%. The current CPI stands at 2.5%, with forecasts for 2024 predicting it to reach 2.4%. Therefore, it is likely that the Fed will continue its policy of reducing official rates in the coming months.
In Spain, the Harmonized Consumer Price Index (IPCA) seems to be under control. It closed at 3.6% in June, 2.9% in July, 2.4% in August, and 1.7% in September (with the core rate at 2.4%).
In the medium term, economic activity is expected to benefit from the reduced impact of monetary tightening and a relaxation of financing conditions, supported by expectations of interest rate cuts. These rate cuts will be highly positive for the real estate sector's recovery, as they would reduce financial costs (Euribor), compress sovereign bond yields, and thus lower the yields demanded by real estate investors. In June, the Euribor stood at 3.65%, and as of September, it was at 2.95%, with expectations of it potentially being lower by the end of the year. Similarly, the 10-year Spanish bond yield was at 3.5% in June, currently at 3.0%, and it could fall below 3.0% by the end of the year. With this scenario, yields could compress by 25 or even 50 basis points in less than a year.
