Madrid has been ranked as Europe’s third most attractive city for businesses and employees in Colliers International’s latest European Cities of Influence report which reviews and ranks cities based on their occupier attractiveness, availability of talent, and quality of life factors alongside economic output and productivity.

Madrid jumps high up the rankings into 3rd place, despite being only 8th in the in-augural study in Q1 2017.

“Madrid’s has benefitted from a positive shift in occupier strength and attractiveness which has also run hand-in-hand with a significant jump in investment volumes over the last year. In 2017 Madrid recorded a 72 percent increase in acquisitions, making the Spanish capital the third largest investment market in Europe for the first time as investors buy into the significant long-term potential of the city. The volumen of office deals in 2018 will exceed the figures achieved in 2017 due to Asset rotation and sale of large portfolios. Sales will come mainly from SOCIMIs and investment funds who acquired assets in 2013 to 2015. With regards to purchasers, interest from pension fund managers, insurance companies and private equity will remain high", explains Neil Livingstone, Managing Director at Colliers International Spain.

Beyond Madrid, the Cities of Influence report has ranked London as the most attractive city in Europe for a second year running, with Paris, Moscow and Birmingham making up the rest of the top five. This year’s new extended version of the report looks at 50 major European economic hubs – building on the twenty cities covered in the inaugural report – providing a broad geographic coverage of European markets that are of global, regional and national importance.

“It is significant that the gold, silver and bronze positions in our Cities of Influence index mirror investment volumes over the course of 2017, suggesting that investor activity is becoming closer aligned to broader, long-term drivers of occupational growth.

“There are many cases where cities feature strongly in our index but, at present, do not perform as strongly as investment capital destinations. This includes some of the key regional UK markets, French regional markets such as Lyon, but also cities as diverse as Milan and Moscow. For some, this could be put down to economic conditions only truly turning the corner more recently, but also political conditions curtailing international investment, such as in the case of Moscow. For Milan, significant concerns over the banking industry and political uncertainty are holding back both investment and occupier growth. For the UK and French regional cities, however, the ongoing policies of economic devolution and more labour market flexibility should see a renewed distribution of capital into these markets, product allowing.

“When compared to the German Big7, and the major Nordic capitals, UK cities in particular look significantly under-invested, given their occupier strength and growth potential,” explains Neil Livingstone.

Peter Leyburn, EMEA Director of Client Services at Colliers International, adds:

“Office occupier strength is the engine room for a city economy and as a driver of all other forms of real estate demand: be it retail (and thus logistics), hotels, leisure and residential. Occupational strength will also help drive rental growth and longer-term this is the most important driver of capital value – especially in an environment where yields do not look capable of compressing any further in the vast majority of markets. So this analysis should be a good marker for where investment capital should go.”

“Urban transformations and new infrastructure are also very strong drivers of investment growth. Given we are now approaching the peak of the investment cycle in terms of pricing, and thus volumes, the logical evolution of the cycle is to see a redistribution of capital into cities, illustrating a strong basis for occupier growth alongside those with new key infrastructure changes,” says Richard Divall, Head of Cross Border Capital Markets at Colliers International.