MADRID-Despite Spain’s sluggish economic recovery and 20% unemployment, Madrid office may offer strong returns to investors prepared to look beyond the negative headlines, with potential for rental growth and attractive yields, according to BNP Paribas Real Estate.

Concerns over wider economic woes need to be set aside and focus put on the local economy, healthy occupational levels of prime CBD, and the limited office pipeline, the company said in a report entitled Why Buy? Specific stock in micro locations, particularly submarkets, are of interest. The lack of completions beyond 2013 will tighten demand and prompt rental growth.

Prior to 2007, Madrid CBD was priced aggressively against European peers, but deals are now possible significantly below market peaks, and it stands apart from the rest of the country due to a strong international occupier presence, says the realtor. Core vacancy peaked in 2010 at 4%, below 12.9% for the city as a whole, and general levels are seen dropping.

Take-up rose 25% last year, while speculative construction has come to a halt and no completions are projected beyond 2012. However, CBD investment has fallen, with just four transactions last year. Office investment across all districts totalled $1.3 billion, 75% of which came from Spanish institutional funds and private investors, while yields in the CBD have remained unchanged at 5.5% since Q2 2010.

Allan Saunderson is a managing editor of Property Investor Europe and a contributor to GlobeSt.com.