What comes up must go down, but what comes down must go up? That seems to be the case in the Real Estate market. We have moved from a deep and profound crisis to a gradual recovery. In 2015 the unemployment rate started to decline, the exportations kept increasing and the expert’s analysis reveal that the 2016 GDP growth might reach over a 3% in Spain, a rate above the expected from our neighbor countries.
While the recovery continues, it is not all green shoots as there are risk that could put these perspectives in jeopardy. The IMF indicated a few days ago the need to carry out concrete actions in order to strengthen the foundations of the global economic re-launch, aiming at the deflation, as it is given by the fall in demand, the low prices of energy and raw materials and the sharp declines and high volatility of the stock prices. At a local level, the current political uncertainties as well as the institutional impasse add risks to the Spanish economic situation.
“While the recovery continues, it is not all green shoots as there are risk that could put these perspectives in jeopardy. The IMF indicated a few days ago the need to carry out concrete actions in order to strengthen the foundations of the global economic re-launch”
In this chapter we will discuss to the rent of office spaces and its future prospects. The launching of these assets in the European market it’s a reality today. Every city in Europe is befitting from this growth, with the exception of several German and Irish towns. If we focus on Madrid or Barcelona it will be noticed that they are the spike of the growth as its expected growth for the next 24 months is a 50% in comparison to the past 4 years.
But, what happens with the rents? The evolution of the prime zone office space rent in Spain was decreasing since 2008 until 2015 when it slightly started rising into a recovery attempt, increasing the rents gradually. In this regard it is noted that the Spanish rents, specifically in Madrid, where they are considerably lower than in our neighbor countries such as, of course, London, from which we are positioned an 80% below, Dublin, 40%, Paris and Moscow, a 56% and Rome a 16% lower. Other cities are down our average rent, like Bucharest and Lisbon, around 43% , Athens a 55% and Brussels a 15%.
“The current forecast would be an increase in rents of around a 30% in Madrid and a 25% in Barcelona over the following 3 years and yet, the prospected rent s will be below the rents of the early twentieth century.”
Over the course of this economic crisis these assets’ stocks have been rising, possibly due to the difficulties of most organizations in keeping its businesses and its income levels. Nevertheless, since the second half of 2015 this stock slightly begins to short.
However, as it has been noticed before, currently there is a high liquidity as well as a lack of quality assets, which paralyzes the final investment decision. On many occasions it is necessary to bring the asset to a working condition and the rehabilitation of the spaces, bringing more attention and weight to the environmental and energy efficiency regulations, as it is needed to take into account the environmental certificates and the requirement of open common spaces such as green rest areas (who doesn’t like to freshen up the ideas during the lunch break).
In any case, the risk analysis increase its significance in relation to the political uncertainty, which it is expected to be solved the sooner the better as a godsend. An example of this might be the preservation of the historic heritage required by the city councils, as it has happened to some oriental investor in the heart of Madrid.
However, not to divert us from the main issue, again on the matter of the rents, we now quote Seneca: A great sailor will always sail, although its sails might be rented. Sometimes not being the owner minimizes the risks as well as helps to invigorate the real estate market.