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Profile: How viable is the office sector?

barcelona_office_investment_@22Experts at real estate specialist AEW look at a recent office acquisition in Barcelona and speak about the viability of the sector in a post-Covid world. 

In November last year, AEW made its third investment in Barcelona’s office market with the acquisition of a development in the city’s trendy @22 area, also known as Barcelona’s ‘innovation district’.

Located in the old industrial neighbourhood of Poble Nou, @22 has seen ongoing redevelopment with the aim of creating a technological hub of for the city.

At the time of the acquisition, AEW fund manager Carsten Czarnetzki said, regardless of the Covid-19 pandemic, the need to bring people together to interact face-to-face remains. 

“Ultimately this means that, while the way offices are used will change, they will remain integral to our working lives,” he said.

But compared to 2019, office uptake in the Catalan city nearly halved in 2020, the fund manager highlighted, speaking to Funds Europe earlier this year. Despite this, the firm remains confident in the sector. 

“With occupiers actively assessing their short, medium and long term space requirements in the context of an ongoing pandemic, we see a long term shift towards larger space requirements per employee, offset by a higher home office component,” explains Czarnetzki.

“Whilst the net effect is still too difficult and early to gauge, it is clear to us that there will be an accelerating trend towards modern, grade A, high quality space allowing for modern amenities and flexible space configuration, which new developments are best place to accommodate.”

Against this background, he says, the acquisition is more viable than ever.

“Tenants in Barcelona’s [email protected], which are mostly international, appear to be less price elastic compared to previous downturns, suggesting a lower impact on rents,” he says. 

“This has been demonstrated through a new lease which we have recently signed in [email protected] at pre-Covid rental levels.”

The firm has now moved on from assessing the immediate local economic and market impacts of Covid-19, according to Hans Vrensen, managing director and head of strategy and research at AEW.

“With central banks locked into keeping rates and government bond yields lower for longer, this should keep prime property yields low and capital values stable,” he tells Funds Europe. 

“It should also offset any challenging conditions in the occupier markets. Apart from some areas of retail, we expect to see attractive opportunities across many European logistics and office markets.”

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