Madrid, London and Paris — the three office markets to invest in now
With the 10-year average bond yield in the US, Japan and Europe dropping to its lowest level ever, the current euro depreciation and the strong recovery in the Eurozone - property investments in Europe are becoming more attractive for Middle East investors.
According to Savills, a potential £7-10 billion (Dh38bn-Dh54bn) will be invested into European real estate markets from this region this year.
Commercial real estate investment made in European territory equalled €80.1bn (Dh312bn) during 2014 representing a 20 per cent increase compared to 2013. In the office sector, Madrid leads the way in Europe with a 245 per cent growth between 2013 and 2014 according to BNP Paribas. In terms of total investment, London and Paris top the listings in Europe with more than £20bn and €17bn respectively.
Here, Daniel Aguilon, the co-founder of HispaLux Consulting, a consulting firm based in Dubai - which helps investors from the Middle East invest in Spain - reveals more about these three commercial property markets:
Following an economic recovery, Madrid registered the third consecutive period of growth in Q4 2014, both in terms of full-time jobs, as well as permanent jobs which contributed to the increased take up of space for the first time in seven years. This trend is likely to continue with the creation of new jobs.
Spanish reits known as SOCIMIS were the main players during 2014 with 39 per cent of the total investment followed by investment funds with 19 per cent which helped office investment received during 2013 surpass €2.5bn in 2014, according to Spanish consulting firm Aguirre Newman.
Maintaining a positive trend since H2 2013, selling prices within the central business district rose by 11 per cent during 2014 from €4.666 to €5.188 per square metre. Likewise, rental prices are also on a rise since 2013 with a 4 per cent increase during 2014 and forecasts indicate that during 2015 this increase could duplicate the last figure reaching 8 per cent, according to Aguirre Newman.
The lack of new developments and modern office space in the centre of Madrid forces investors to refurbish and adapt older building to the current market demands. The excess of liquidity and the lack of product on the market that meets investors’ requirements has meant office yields have generally hardened, particularly with regard to prime yields which now stand at similar levels with the European average.
Capital value growth in the office sector has been seen across the entire UK. Central London recorded growth of 7.2 per cent for the fourth quarter and 15.6 per cent for 2014 as a whole, according to CBRE.
Within the office sector, central London experienced the strongest rental value growth, at 11.4 per cent in 2014 compared with 8.1 per cent for the rest of the UK. However, yields are showing the reverse of this pattern, with the strongest falls being recorded in the rest of the UK.
Both City and West End markets experienced strong demand for investment products throughout 2014. Overseas investors continued to dominate the larger lot sizes while UK institutions have been extremely active towards the lower end of the market.
Annual London office take-up reached a 14-year high (15.7 million square feet) with transaction levels surpassing 3.5 million sq ft in each quarter. 2014 saw total office completions reach 7 million sq ft, the highest level since 2003 and over 50 per cent up on 2013. However, space under construction has fallen year on year and is 25 per cent below the longer term average, according to Colliers.
At the end of December, the Greater Paris region market broke through the €17bn threshold following an increase of 46 per cent in a year. Throughout the year as a whole, 44 transactions for more than €100 million were finalised. Foreign investors represented 45 per cent of amounts invested, according to JLL.
Prime office rents in Paris fell 3.2 per cent in the fourth quarter, and office vacancy rates increased to 5.2 per cent, according to Savills. In terms of Paris’ Central Business District, prime yields are now between 3.75 per cent and 4.25 per cent, almost their record low, according to JLL.
The symbolic threshold of 4 million sq m of available office space was exceeded at the end of the year, representing a current vacancy rate of 7.6 per cent for the Greater Paris region. Despite the market continuing to offer an abundant supply, there are new projects forecast for the near future. In Clichy-Batignolles 50 hectares of land is due to be developed by 2018/2020 which includes the development of a number of office buildings (140,000 sq m overall). In Saint-Ouen the Docks district comprises 100 hectares in which 310,000 sq m of office space will be added.
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Updated: March 18, 2015 04:00 AM