A Q4 2013 study on Barcelona office rental and investment by the real estate consultancy Jones Lang LaSalle (JLL) claims that the price of office rentals in Barcelona has now touched bottom after years of price decreases.
In a city like Barcelona, with no building land and a fixed stock of property, offices and businesses like hotels compete with residential demand for floorspace in the city, so on one level all the markets are linked. Price stability in the commercial market is also a positive signal for the residential market.
Prime office rents in the Catalan capital city have dropped 40% peak to present, and are now at €17.5/m2 per month. JLL predicts that in the short to medium term prices will stabilise before rising as demand grows while supply remains stagnant.
These forecasts come with the news that occupancy rates for Barcelona offices are currently at their lowest level for 16 years. In Q4 2013 55,000m2 of office space in the city was occupied while the annual figure came to 177,000m2.
Jordi Toboso, Director General of JLL in Catalunya commented that “despite such low occupancy rates the positive news is that during the last few months there have been signs of a revival in the sector. Q4 2013 saw the highest quarterly activity for the year and everything points to a strong first quarter of 2014.”
The consultancy’s research paper estimates that available supply is at 14.7%, this figure has risen slightly over the last year due to the completion of the Cornerstone development in Barcelona’s 22@ district. The recently finished buildings which currently stand empty house 20,700m2 of office space.
However, JLL predicts that the amount of available office space will start to fall from the second quarter of 2014 onwards as there is no new offer scheduled to come onto the market and improving economic conditions will encourage a greater take-up from businesses.
Regarding investment in the city’s office space JLL’s study shows that activity in the last quarter of 2013 confirmed the trend of increasing investor interest in the Barcelona real estate market and particularly in centrally located properties. This increased interest in 2013 translates into an 8% year on year increase on 2012 with investment totalling €290 million.
2013 also saw the continuation of the tendency towards hotel owners investing in office buildings with a view to converting them into hotels. This type of investment now makes up an important part of the market with 20% of total investment during 2013 being of this type.
On the supply side JLL detects a lack of product that meets investors’ expectations in terms of potential yield although properties that have been put onto the market by the Catalan regional government have attracted interest as well as those that are located centrally, are well priced and have short rental contracts.
Investors are also increasingly looking for off-market opportunities due to high demand raising competitiveness. This will be important during the upcoming quarters as prices start to reflect yields which have now reached their lowest level and are set to begin a period of stabilisation.
It’s a similar story in Madrid, where JLL say prime office space rents appeared to be stabilising.