Why Invest in Office Space in Spain

Why offices remain an investment opportunity in Spain

Offices have been one of the most analyzed segments of the real estate market in recent years. The evolution of working models and the consolidation of more flexible formulas have raised numerous questions about the future of this type of asset. However,the data shows that the market continues to be supported by solid fundamentals and by demand that continues to evolve towards higher quality spaces.

In Spain, this reality is especially reflected in Madrid and Barcelona. Both cities stand out for maintaining arobust occupational activity, increasingly reduced availability and a favourable outlook for income developmentsThese factors are placing the Spanish office market among the most attractive investment opportunities in the European context.

Demand for offices continues to grow

The strength of demand is one of the main arguments explaining the interest in offices in Spain. Madrid and Barcelona continue to lead the growth of contracting compared to other large European markets andrecorded activity levels 35% higher than those observed between 2010 and 2014.

In addition, employment prospects support this trend. More than half of the projected office job creation in the European Union by 2030 will be concentrated in five cities, andMadrid and Barcelona will capture 14% of the total. This growth reinforces the need for corporate spaces capable of responding to the new demands of companies and their employees.

Far from disappearing, the office continues to be a strategic asset to attract talent, boost collaboration and strengthen corporate culture. Therefore, demand maintains a solid base even in an environment marked by the transformation of working models.

Shortage of supply drives market appeal

To the dynamism of demand is added an increasingly relevant factor: the limited availability of quality space.

The main business districts of Madrid and Barcelona have particularly low levels of availability. In some cases, companies looking for Grade A offices have just over ten alternatives in Madrid and just five in Barcelona, an even more limited number when the search focuses on areas greater than 1,000 m².

The situation also doesn't look like it's going to change anytime soon.The future promotion foreseen in the Madrid CBD remains well below absorption levels registrados históricamente, while in Barcelona there is currently no new development under development within this area. Added to this is the conversion of buildings to other uses, a phenomenon that continues to reduce the available stock.

As a result, space scarcity is no longer limited to the most prime locations.Demand is spreading to other well-positioned urban markets that are also seeing rapid uptake of the new supply available.

Rent growth keeps going

When a solid demand matches a limited supply,rents tend to become the main market adjustment mechanismThis dynamic is already visible in both Madrid and Barcelona.

Prime rents have experienced significant growth in recent years, driven by improving occupational fundamentals and growing competition for the best spaces. However, the Spanish market continues to show potential for additional growth compared to other European destinations.

The recovery of incomes in Spain after the Global Financial Crisis has been more gradual than in other European markets. While cities like London or Paris recovered their previous levels in a much shorter period, Madrid and Barcelona took 16 years to reach those values. This evolution explains that the accumulated path continues to be lower than that recorded in other consolidated markets and supports the expectations of further increases in the coming years.

As prime space availability declines, income growth will continue to be supported by increasingly robust occupational fundamentals, bolstering the revenue-generating capacity of office assets.

A favourable context for investment

The combination of demand, scarcity of supply and growth of rentsis setting a particularly attractive stage for real estate investment in offices.

Added to these factors is a more favourable financial environment. The appetite for financing assets located in central areas once again places offices among the asset classes preferred by numerous national and international financiers. This contributes to improved market liquidity and reinforces opportunities for investors looking for assets backed by strong fundamentals.

Although these dynamics are especially visible in Madrid and Barcelona,lack of quality space is expanding opportunities to other strategic urban markets, where demand also shows a significant capacity to absorb new supply.

A market backed by solid fundamentals

The Spanish office market is in a differential position within Europe. Contracting remains above the levels recorded in previous cycles, prime availability is at levels similar to or lower than those prior to the pandemic, future supply remains limited and rents maintain growth potential.

In an environment where the quality of fundamentals is decisive for investment,Spain stands out for combining demand, product shortages and growth capacityAll this helps to reinforce the attractiveness of offices as a real estate asset and to consolidate the role of Madrid and Barcelona among the most relevant markets for European capital.

If you want to dive deeper into the trends that are shaping the future of the office market, download the full reportWhy Invest in Offices?and know in detail the conclusions drawn by CBRE Research.