In the wake of the online sales crisis and the pandemic-induced shift to remote work, the real estate industry is now facing another crisis: empty offices. This has led to a steep decline in the stock market value of companies in the sector, particularly Inmobiliaria Colonial, a Spanish company specializing in the rental of prime offices in Paris, Madrid, and Barcelona. In just a month and a half, Inmobiliaria Colonial has lost 22% of its value, amounting to over 700 million euros. This drop is higher than the European average of 7% and the 8% loss seen by its Spanish counterpart, Merlin Properties, which diversifies its portfolio with commercial and logistics properties.

The decline in stock market value does not accurately reflect the strength of Inmobiliaria Colonial and other Spanish real estate companies. Despite the empty office space, Inmobiliaria Colonial maintains historic occupancy levels, and its ability to pass on the rise in inflation to rents sets it apart from other companies. Analysts believe that the market’s failure to recognize these strengths reflects a lack of discernment and discernment between different companies in the industry.

Real estate companies fall on the stock market

Sources close to Inmobiliaria Colonial attribute the stock market decline to broader sectoral issues rather than specific shortcomings of the company itself. The company boasts high occupancy rates in its main markets of Paris and Madrid, with rates of 99% and 96% respectively. Despite an increase in financing costs, Inmobiliaria Colonial has managed to maintain an average fixed rate of 1.7% for the next six years and has a liquidity of 2.7 billion euros, ensuring debt payments until 2028.

An interesting fact is that Inmobiliaria Colonial has sold assets worth nearly 600 million euros at market prices, rather than accepting the 50% discount applied by the market. This means that its stock market value is only half of the true value of the office space in its portfolio. The company has also secured record lease rates, such as 41.5 euros per square meter on Velázquez Street in Madrid and 1,110 euros per square meter for offices in the Washington Plaza building in Paris.

The decline in the real estate market has extended beyond Europe, with concerns about defaults on debt and empty offices in Silicon Valley. Large investment fund managers are actively selling their real estate holdings, and this trend has now reached Europe. Germany and Paris have experienced the largest price drops of 42% and 32% respectively, followed by Barcelona and the financial district of Madrid with drops of 27% and 24%. London also saw a decline of 17%, double that of its city center.

There are also concerns that the real estate problems will impact banks that have lent money to the sector. Spain, Italy, and Ireland saw the highest increases in doubtful loans to the real estate sector, with a 7% increase compared to the European Union average of 4%. French and German banks hold the greatest exposure to real estate debt at 21% each, followed by Italian banks at 10% and Spanish banks at 9%.