May 15 (Reuters) - Spanish real estate group Inmobiliaria Colonial said on Monday its first-quarter recurring net profit rose by 5% to 38 million euros ($42 million), lifted by inflation-linked rental income and high occupancy rates.

Colonial, whose prime assets are located in big cities centre, said inflation indexation readjustments for contracts will further increase its rental revenue in the next quarter.

Although the COVID-19 pandemic has changed employment habits, with many people continuing to work from home, Chief Executive Pere Vinolas told reporters that Colonial was not seeing any decline in demand for office space.

"Companies are interested in long-term rents in the best places," he added.

The real estate sector has been under pressure since the end of last year as volatile markets and tightening financial conditions slowed property investment.

However, Colonial's portfolio, including buildings located in Spain and France, achieved an 11% jump year on year in like-for-like rental income in the first quarter.

Its occupancy, meanwhile, hit a record 97%, boosted by almost full rate in Paris.

Colonial's first quarter results do not include an updated valuation of its assets, which is presented every six months and dropped 2% at the end of last year from the previous reading, cutting the group's full-year net profit by 98%.

Barclays analyst Celine Soo-Huynh said that the building valuations do not affect its cash performance, but any valuation writedown can trigger disposals and a loss of rental income.

Colonial, whose shares are down 8.74% year so far this year, reaffirmed its full-year guidance from February of earnings of between 0.28 and 0.30 euros per share.

Last week its board proposed a dividend of 0.25 euros, 4% higher than last year and a payout of around 135 million euros. ($1 = 0.9084 euros) (Reporting by Matteo Allievi and Jakub Olesiuk; Editing by David Goodman and Alexander Smith)