Rental levels in Spain’s Prime Office sector have a six-quarter lagged correlation factor of 76 per cent with the country’s unemployment rate in the two decades between 1994 and 2014. In 2014, Spain saw the largest annual drop in the number of unemployed since 1998. The unemployment rate fell from 25.2 per cent in February 2014 to 23.4 per cent in February 2015. Consensus forecasts are that the economy will grow by 2.4 per cent in 2015 and 2.3 per cent in 2016.
Analysis2 by Cordea Savills of the year-on-year rental growth of six property market segments of Madrid and Barcelona suggests that Spanish real estate generally has turned the corner, with no rental decreases in the first three quarters of last year and a small minority of decreases in Q4.
Spain’s improving property rental cycle, combined with a positive economic backdrop, is resulting in strong capital flows, which indicates that institutional investors are back in the market. Rolling annual investment volumes have increased 142 per cent since bottoming at around EUR 2 billion in Q2 2013.3
Irfan Younus, Associate Director of Research and Strategy at Cordea Savills, says: “Prime property in prime locations is the most sought after by investors but a scarcity of assets means they are moving up the risk curve. Going forward, greater access to credit will be a key factor in stimulating investor activity.
“The Spanish property market offers attractive mid-to-late cycle investment opportunities for Europe-wide strategies. Prime yields will continue to harden due to a lack of assets, increased demand and the expected uplift in rents.”
Source: Property Funds World