28 / 116
28 // iberian.propery / 2017
dossier// ISSUE: TOP IBERIAN cities
3 questions you should ask
before investing in Madrid:
A pool of experts answers three key ques-
tions, predicting how they expect investment
in Madrid to evolve over upcoming months.
1
Would you recommend
investing in Madrid today?
What is the principal reason?
There are still good opportunities to invest in
Madrid, despite the increase in prices of the
last fewyears. The logistics sector is a good
example due to the attractive combination of
secure income with high entry yields (c.6.0%
comparingwith 5.0-5.5% for France/Germa-
ny), limited availability of quality stock (3-5%
vacancy rate) and rental growth potential
driven by positive trends in tenant demand.
Absolutely. Madrid is the capital of Spain
and the country’s main business hub. Prod-
ucts in Madrid are still relatively cheap com-
pared to other European cities. It is an ideal
market for investors who focus purely on
the office segment, as reflected by the
latest data which shows that investment
volumes were up 55% in the first half of
the year, versus the same period last year.
2
Do you believe the market will
continue to appreciate over the
next 12 months?
Will that evolution occur mainly
through yield compression or a
rise in rents?
With yields at historic lows, it will be difficult
to see additional value increases on core
properties since, in most cases, rental growth
is already priced in the valuations. Howev-
er there is room to create value for those
investors initiating projects that involve (re)
development, refurbishment and leasing risk.
In our opinion, the market is not fluctuat-
ing. In fact, the outlook is positive across
all market segments and, although we’re
seeing yield compression, the trend is to-
wards a more stable scenario and a gradual
increase in rental levels, due mainly to the
lack of supply.
3
What is the main investment
barrier?
The main difficulty in executing investments
in Madrid has to do with the scarcity of
“in-
vestable”
assets which, combined with the
current low yields, puts pressure on asset
pricing, making it difficult to achieve the
returns required by institutional investors
unless additional risk is taken. As a result,
some markets in secondary cities (i.e. high
street) are increasing their attractiveness vs.
Madrid and Barcelona.
The primary challenge is the lack of quality
product. This is why the major opportuni-
ty for the market lies in asset renovation
and repositioning to adapt existing stock
to current trends and investors’ demands.
Antonio
Simontalero
CBRE GI
Head of
Investment
Operations Iberia
Enrique Losantos
JLL
CEO Spain