Real estate investment in Madrid tripled in 2014, to reach €3,600 million, compared with €976 million in the previous year. In addition, office rentals in the capital have risen for the first time since 2008, with an increase of 10% with respect to the previous year, due (mainly) to “prime” income, which reached €312/m2 per year at the end of the year.
In the meantime, investment in Barcelona also increased, although to a lesser extent (by +9%), to amount to €1,300 million in 2014. Similarly, the city registered record office rental figures, exceeding the levels achieved in 2007 by 18 basis points.
In this line, the study highlights the recovery in the markets that were hit the hardest by the crisis: in Dublin and Madrid, for example, investment increased by 120% and 278%, respectively (last year). London, which recorded a slight decrease with respect to 2013, attracted the highest volume of investment in Europe, with almost €30,000 million, followed by Paris, where investment amounted to €17,000 million.
(Across Europe), investment in non-residential real estate increased to €108,000 million, of which €74,000 million related to offices, a volume that made last year the best year since 2007.
Office leases increased by 10% in Europe
Office leases in Europe increased to reach 11.7 million square metres in 2014, i.e. 10% higher than in the previous year, driven by growth in Paris, Berlin and Brussels.
The study reflects that the improvement in economic conditions and the labour market in 2014 had a positive affect on the office market in Europe. In this way, the return of large transactions has contributed to good results in most markets.
As in previous contexts, the main drivers of demand were reductions in costs and rationalisation; similary, users maintained their preference for new buildings in good locations.
Despite the significant increase in office leases, the average vacancy rate in the 35 cities analysed decreased by 10 basis points only and is still above the threshold of 10%. These levels are possible because the reduction in available space was in partly offset by a higher volume of new developments and the freeing up of second hand space as users relocated, according to the real estate consultant.
However, the lack of supply in central areas has kept rents under pressure in the case of ‘prime’ category buildings. As a result, average ‘prime’ (rental) income increased by 3%, driven by increased activity in rising markets, such as London and Dublin.
By contrast, rentals in peripheral districts evolved in the opposite direction, as they continued to suffer from high vacancy rates, which forced owners to offer incentives to prevent price decreases.