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Madrid's office take-up is forecast to drop by over 40% this year, its weakest point since the beginning of the 1990s, according to Jorge Sena, head of JLL's Spanish team.

As demand for office space continues to weaken in the country, rental levels in the Spanish capital are expected to drop through 2009 and the beginning of 2010, he added.

Office take-up in the city is likely to amount to just 260,000 m² this year, down by 43% compared to last year's figure of 457,000 m². In 2007, take-up of office properties in the city was as much as 846,000 m2, over three times the level in 2009. 'We are back to the levels of the 1990s in terms of take-up, and rental prospects in the Madrid office market are down by around 30% compared to the peak of the market,' Sena said, adding that prime office yields are at around 6.25% in the city.

While local investors and family offices have increased their share of total investment, institutional investors are still on the sidelines waiting for the right assets to come to the market. 'The average rental contract in the market is just two years, because tenants do not want to commit to an asset. This is why institutional investors looking for prime property are not buying in Spain at the moment. They do not want to take any letting risk,' Sena said. On the other hand, he added, opportunistic investors are waiting for prices to drop further before stepping in.

Capital values in Spain have fallen by over 50% over the past two years, and a further correction in value is expected to take place until mid- 2010. A promising sign, however, is that banks - which have become the largest property owners in the country during the crisis - could soon change their real estate approach and decide to put part of their property on the market. 'As a result, we could see the investment market pick up again next year,' Sena concluded.