Spain is a highly decentralized country. Despite this, it has Madrid, which is the main attraction. It generates a significant amount of capital, which makes it remain relevant and always appears in many news stations’ headlines.
Apart from being in the news, it always receives a lot of attention, which makes it amass a lot of investments.
The real estate market in Spain is highly appreciated since what happens in Madrid always ends up spreading up over the weeks to other parts of Spain. The office market in Madrid is a good example of this spreading effect.
The Covid-19 pandemic has had a huge impact on the community that houses Spain’s capital. Spain has been the most affected territory in the second wave of the Covid-19 pandemic since the pandemic causes companies to slow down on their activities.
Price drops have been on the rise in rents for owners who own medium-sized and small houses, the less corporate and professionalized owners. At the moment, large house owners are resistant due to their property’s value in reference to pre-Covid-19 income levels.
How Office Rental Works in Madrid and Other Large Capitals
Various capitals in Spain, mainly Barcelona, Valencia and Bilbao, are suffering many social impoverishments due to their capability to attract companies. This comes as a result of companies disappearing and high losses among the survivors. These effects are felt in the real estate market.
Real estate market is not the same as the housing rental market since it’s characterized by a management with great professional skills applicable in ‘prime’ areas.
Generally, these areas have the best properties and those that are owned by large property holders such as SOCIMIS, investment funds, insurance companies among others. At the moment, its level of income is balanced since the buildings’ value is as per the pre-Covid income levels.
In such cases, potential tenants are offered longer grace periods or contributions to their implementation works. In the contract, the same rent per month prior to the pandemic remains the same.
These incomes will start to reduce gradually come next year that is if the health, social and economic crisis continues to affect Spain and from the look of things, it seems it will.
On the other hand, those who are already correcting rents are the medium and small owners that cannot afford to have their spaces available for a long time due to erosion. This erosion generates their income statements and their sensitivity to cash stress. In addition to this, they also experience low capacity refinancing.
The Covid-19 pandemic has created a burdensome impact on the Spanish economy whereby the current situation is giving rise to what is known as the ‘tidal effect’.
This tidal effect consists of users relocating to the periphery when the income increases, looking for cheaper rentals. Users will return later when the price decreases and recover better locations.
At the moment, we are in that impasse where the tide goes out which had transferred to rentals. This is evident as a search by the companies of offices for rent in Madrid.
Further Drops in Selling Price
The first sign that we are entering a housing market crisis is the fall in the price of rents. A reduction in the sale price of offices will then follow, which will occur inevitably unless the interest rates drop.
This will pave the way for maintaining investment returns by facing the risk premium. However, it’s not likely since the interest rates have been the same for a few years.
Future projections display a scenario where will have a major crisis come the year 2022 for the offices for rent in Madrid Madrid and Barcelona.
This crisis will affect the offices situated in the suburbs and areas that are not well connected by public transport and areas that are far from residential environments.
Tense Wait in the Residential Housing Market
The Spanish domestic market for renting and selling offices behaves the same as the other countries in the eurozone. This has prompted the Institut Der Deutschen Wirtshaft of Germany to carry out a study that compares the fall in rental prices with the decrease in GDP and the reduction in offices’ sale.
In reference to the sale of residential homes, Madrid among the most ‘stressed’ markets in Spain. Over the month of July, the home sales in the community decreased by 41.1%. This is almost 10% more than the national average.
Buyers and sellers are experiencing a very tense calm. This is because of the former trust that the decreases in the sale and the rental price will come. While from the real estate sector the buyers and sellers hope that the aid from the EU will serve as a stimulus to restart the economy. This will allow them not to give big discounts.
The residential market in Madrid has experienced noticeable growth in recent months. This is because fewer international students and students from other communities travel to the city of Madrid for studies and many tourist accommodations have been left free.
Covid-19 Promotes Relevant Changes In The Rental Market In Madrid is a feature post