The price of prime Madrid office space has fallen 41% since its mid-2007 peak to some €6,000 a square metre, Aguirre Newman's head of research, Javier Garcia-Mateo, said.
That has led to interest from wealthy families, but their budgets are usually no more than €30 million, making big lots difficult to shift.
CB Richard Ellis' head of research in Spain, Edward Farrelly, estimated the price fall at about 50%. He said institutional investors like pension funds would hold off purchases until at least 2010 because rents continued to fall.
"Institutional investors are keeping a very, very close eye on the market (but) they think there is still some more movement in rents," Farrelly said.
Prime yields have risen to 6.5%, but Madrid still lags London, where some yields have now hit 7%, he said.
Farrelly said €700-750 million worth of offices were sold in Madrid and Barcelona in the first half, estimating volumes fell 40-50% year-on-year in the January-March period.
Aguirre Newman put the figure at a more modest €660 million, with foreigners buying €110 million of that.
Of the sellers, banks offloaded €175 million of back office space in Spain's top two cities in lease-back deals over the first half, the consultancy said.
Analysts said rental demand was a big problem.
Space leased in 2009 would be half that rented out in 2008, said Garcia-Mateo, adding vacancy space would continue to rise even though no big projects hitting the Madrid market in the second quarter.
Demand in the capital was better in the second quarter than the first but still down 60% year-on-year, Farrelly said, adding businesses were downsizing and downgrading, with a growing number moving north and away from downtown Madrid.
Whilst Spain's worst recession in decades is savaging consumer spending and squeezing rents, the market for retail space was doing better than offices, as values have fallen 40% and yields are up to 7 to 7-1/2%, said Farrelly.
Jones Lang LaSalle retail director Steven Weaving, who put the drop at closer to 20-25%, said that, as with offices, he was seeing demand for small lots from private investors.
"Volume is probably better than in many other European markets because Spain has repriced and looks attractive compared to historic levels," he said.
Weaving says €640 million of assets were sold in the first half, 60% in two mall acquisitions by Orion Capital Partners and Dutch firm Curio, for a combined €388 million.
Much of the remainder were deals by lenders La Caixa Catalunya and Banco Pastor, which sold and leased back branches for €230-240 million, Weaving said.
Rents were now the markets main worry, analysts said.
"We have seen a repricing on yield ... and now we are all waiting to see if rents have stabilised. That is the big unanswered question for the second half." "Rents of prime-located retailers are holding up because of a lack of stock, but those in secondary locations have been hit hard. Around Madrid and Barcelona there are definitely more holes appearing in secondary locations," said Weaving.
It now took six-12 months to let a high street store compared with three months a year ago, he said.
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