Spanish real estate firm Merlin Properties on Thursday reported a 7% increase in gross rents in the first quarter, driven by high occupancy levels and inflation.

Commercial real estate has been in the spotlight lately, as rising interest rates and fears of a recession have discouraged investment in real estate, while debt bonds offer better yields.

For Merlin, the impact of rising rates was partly offset by rising gross rents, as leases are linked to inflation, and by resilient occupancy levels across its portfolio, which includes office buildings, shopping centers and logistics.

Occupancy rates increased in offices and shopping centers compared to the previous year, but fell slightly in the logistics division, from 97.8% to 96.8%.

The company posted a net profit of €66.2 million in the first quarter, down 28.5% from the same period last year.

The year-on-year comparison of net profit was complicated by the sale of 662 branches to Spanish bank BBVA in June last year, which brought in €83.6 million in gross annual rents, according to analysts at Renta 4.

First-quarter net profit does not take into account the updated valuation of the company's real estate, which is presented semiannually along with results, and fell 1.5% at the end of last year due to higher interest rates.

(Reporting by Matteo Allievi; Editing by Chris Reese and Deepa Babington, Spanish edition by José Muñoz)