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RESEARCH
MADRIDOFFICE MARKETH1 2017
MACROECONOMIC BACKDROP | OCCUPIER MARKET | INVESTMENT MARKET
2 3
MACROECONOMICBACKDROPAfter overcoming the political uncertainty and instability that arose on the back of events such as the UK’s Brexit vote and the US elections in 2016, and that cast a shadow over the economic recovery, the first half of 2017 has registered clear signs of growth.
According to the latest National Accounting data published by INE, the Spanish economy registered 3% y-o-y growth in Q2 2017. The Labour Activity Survey also highlighted that the number of employed climbed 2.7% y-o-y in Q2 2017 and the number of unemployed dropped 14.4%, pushing the unemployment rate down to 17.22%, the lowest level seen since mid-2009. Despite remaining high, forecasts suggest that unemployment will continue to decline over the next two years.
People’s perception of the economic cli-mate has improved, with June’s consumer confidence regaining the positive trend seen in previous months and international organisations, such as the IMF, upwardly revising Spain’s economic growth fore-casts to above the Eurozone average and above that of neighbouring countries.
The European Central Bank’s lax mone-tary policy has favoured economic growth. However, although the risk of deflation is no longer a concern, Mario
Draghi’s latest statements regarding future Eurozone monetary policy have confirmed the ECB’s intention to keep the monetary stimulus in place until the end of 2017, in order to further boost the current economic growth momentum.
RentsPrime rents continue to trend upwards, surpassing the €29 per sqm/month mark, with evermore comparables in excep-tional buildings exceeding the average prime rent, meaning that €30 per sqm/month could easily be reached by the end of the year.
The highest rent achieved so far this year was for a small 160 sqm office let to fund manager Legg Mason at Castellana 41, where the incoming tenant signed €37 per sqm/month. Another property which secured some of the highest rents in H1 2017 was Edificio Beatriz, owned by Vyosa, with closing rents ranging between €30 and €36 per sqm/month.
Some lettings in the Secondary Centre achieved higher closing rents than in previous quarters, with average rents in the area’s best properties standing at close to €18 per sqm/month. Outside of the M-30, closing rents have continued to trend upwards since mid-2015, with the average rent standing at around €15 per sqm/month for the best locations in the out-of-town area. In quality buildings slightly further afield, rents have also increased, reaching €11 per sqm/month.
SupplySo far this year, available office space has fallen by 6.4%, with the vacancy rate standing at 11.8%.
Available space in the CBD declined by more than 9% during H1 2017. However, the considerable amount of refurbished space that came onto the market over the past year means that the overall amount of available space in the CBD is still 7% higher in the quarterly y-o-y comparison.
The projects that will add new supply to the CBD over the next few months inclu-de three refurbished properties owned by MAPFRE: Plaza de la Independencia 6, Sor Ángela de la Cruz 6 and General Perón 40.
Plaza de la Independencia 6, is currently in the pre-let phase and is expected to achieve high occupancy even before the refurbishment works draw to a close. The 10,516 sqm Sor Ángela de la Cruz 6 buil-ding will be fully occupied by companies belonging to the MAPFRE group. Finally, between 5,000 and 8,000 sqm will come onto the market at General Perón 40 and be available for occupancy from the start of 2018, as and when the refurbishment works are completed.
OCCUPIER MARKET
Prime rents continue to trend upwards, surpassing the €29 per sqm/month mark, with evermore comparables in exceptional buildings exceeding the average prime rent. Against this backdrop, €30 per sqm/month could easily be reached by the end of the year.
GRAPH 3
Vacancy rate*
GRAPH 6
Variation in vacancy*
Source: IMF
Source: Knight Frank
Source: Knight Frank
2,000,000
0
200,000
400,000
800,000
600,000
1,000,000
1,400,000
1,600,000
1,800,000
1,200,000
11.8%
2007 2008 2009 2010 2011 2012 2013 2014 2015 Q22017
OCCUPIED STOCK
sqm
AVAILABLE SPACE
GRAPH 1
Growth prospects for the main advanced economiesGDP growth rate (%)
OFFICE MARKET. H1 2017 RESEARCH
*Rate calculated includes high-tech properties (planning Reg. NZ 9.4)
GRAPH 4
New supply by construction phase
Source: Knight Frank
0
50,000
300,000
100,000
150,000
200,000
250,000
UNDER REFURBISHMENT
WORKS IN PROGRESS PLANNED
UNDER RENOVATION
sqm
SCHEME WITH LICENSE
201920182017
2016
GRAPH 2Variation in prime rents€/sqm/month
Source: Knight Frank
2007
40.00
24.25
33.00
08 09 10 11 12 13 14 15 16 17 201918
GRAPH 5
New supply by property location
Source: Knight Frank
M30 NORTH
M30 EAST
SECONDARY CENTRE
A1
CBD
M40 NORTH-EAST
0
0.5
1.0
2.0
1.5
2.5
4.0
3.0
USA GERMANY FRANCE ITALY SPAIN JAPAN UK CANADA
2016 2018(forecast)
2015 2017(forecast)
* High-tech buildings not included
29.50
0
50,000
300,000
100,000
150,000
200,000
250,000
sqm
201920182017
29.00
4 5
Over the coming months the following refurbishment works are also set to be completed: Estébanez Calderón 3-5 (10,458 sqm) owned by Colonial, and the full-scale conversion of Velázquez 123 (2,345 sqm) from the residential building acquired by the family-office Mazabi into a single tenant office building.
In the Secondary Centre, the extensive refurbishment of Edificio Auditorio at Suero Quiñones 42, which is let on a long lease to Uría Menéndez, will be concluded towards the end of the year.
In the out-of-town area, the refurbishment of Juan Ignacio Luca de Tena 6 is schedu-led to be completed at the end of the year, thereby adding 3,700 sqm to the M-30 East office area. Another property refurbishment that is expected to come onto the market by the end of 2017 is the 12,800 sqm pro-
perty at Ribera del Loira 28 in the Campo de las Naciones area and the former BNP headquarters. Finally, 17,000 sqm will be added to the office market in the M-30 North area when refurbishment works on the Torre Isla Chamartín in Manoteras are concluded over the course of 2018.
LettingsDuring H1 2017, office take-up exceeded 248,000 sqm, up 13% y-o-y and a similar increase to that seen in the number of lettings completed.
Distribution of take-up and the number of lettings by size bracket remained very similar to those seen in 2016. Lettings between 1,000 and 5,000 sqm accounted for the highest percentage of take-up; 48% in terms of total area.
Furthermore, after a 2016 in which the lion’s share of office spaces over 5,000 sqm were let in more out-of-town areas, take-up distribution inside and outside the M-30 was balanced in H1 2017.
Four of the >5,000 sqm lettings were signed in the CBD in properties that met the needs of new tenants. Within this group, we would highlight two lettings in properties owned by AXIARE, which were recently refurbished: firstly, Manuel de Falla 7, a 6,252 sqm property, which will be occupied by the Community of Madrid’s Department of Social and Family Policies; and secondly, EBAY’s letting of more than 5,470 sqm at Don Ramón de la Cruz 84, where it will house the Ticketbis offices, the online start-up for buying and selling tickets, which it purchased in mid-2016.
GRAPH 7
Variation in total take-up (sqm) and number of transactionsTake-up H1 2017: 248,500 sqm
GRAPH 13
Main occupier transactions H1 2017
ZONA
A6
Source: Knight Frank Source: Knight FrankSource: Knight Frank * Skewing caused by non-relevant deals has been removed
A6
GRAPH 14
Maximum and minimum closing rents by area Q2 2017 * €/sqm/month
M-30 East M-30
East
12.5%
M-40 North-East
M-40 North-East
4.4%
A1
A1
36.5% CBD
A2
A2
6.8%
13.5%
Secondary Centre
M-30 North
M-30 North
18.1%
2.4%
A5
A6
1.6%
CBD Secondary Centre
37.0
19.0
12.014.5
16.8 15.211.8
8.510.0 11.0
7.511.5
8.0 8.0
14.511.0
MAXIMUM CLOSING RENT MINIMUM CLOSING RENT
248,500 SQM
GRAPH 11
Occupied space inside and outside the M-30
50.2%
20162015
49.8%
52.8%
47.2%
INSIDE M-30OUTSIDE M-30
GRAPH 12
Take-up H1 2017 by area
OFFICE MARKET. H1 2017 RESEARCH
Source: Knight Frank
400,000
100,000
0
500,000
200,000
600,000
300,000
700,000
800,000
900,000 1,000
900
800
700
600
500
400
300
200
100
02005 2010 20152006 2011 20162007 2012 20172008 20132009 2014
DEALS
No.
dea
ls
AREA
sqm
TENANT ADDRESS AREA MARKET PROPERTY TRANSACTION
LA CAIXA Manoteras 20 9,399 M-30 North High-Tech Letting
GRUPO CTO Albarracín 34 7,049 M-30 East High-Tech Letting
CONSEJERÍA POLÍTICAS SOCIALES Y FAMILIA COM. MADRID
Manuel de Falla 7 6,252 CBD Exclusive Letting
BANKIA Santa Leonor 32 5,746 M-30 East High-Tech Sale
BAKER & MCKENZIEJosé Ortega y Gasset 29
5,562 CBD Exclusive Letting
360 EXPERIENCE (EBAY)Don Ramón de la Cruz 84
5,471 CBD Exclusive Letting
DELOITTE Torre Picasso 5,340 CBD Exclusive Letting
SAGE Av. de Europa 19 5,104 A1 Exclusive Letting
AMERICAN EXPRESS Partenón 12-14 4,749 M-40 North-East Exclusive Letting
LA LIGA Torrelaguna 60 4,263 M-30 East Exclusive Letting
Another of the large lettings seen in the CBD was completed by Baker & McKenzie following the company’s decision to reloca-te from its existing headquarters, located at Castellana 92, to the 5,560 sqm property at José Ortega y Gasset 29. EY’s relocation to Torre Titania enabled Deloitte to let an addi-tional 5,340 sqm in Torre Picasso, adding yet another large letting to the CBD’s toll.
A further four lettings over 5,000 sqm were signed outside of the M-30 ring road, parti-cularly noting the more than 9,400 sqm let by La Caixa at Manoteras 20 and the 7,000 sqm taken by Grupo CTO at Albarracín 34, a deal that was brokered by Knight Frank.
In Julián Camarillo, Bankia purchased Santa Leonor 32, where the company itself plans to occupy 5,746 sqm.
2.6%
1.6%
H1 2017
50.1% 49.9%
Source: Knight Frank Source: Knight Frank
Source: Knight Frank
GRAPH 8
Quarterly take-up performance
0
100,000
600,000
200,000
300,000
400,000
500,000
Q2 Q4Q1
sqm
201520142013
Q3
20172016
GRAPH 9
Take-up by size of letting
% SQM H1 2017% SQM 2015 % SQM 2016
> 5.000500-1.000< 500 1.000-5.000
GRAPH 10
No. of lettings by size
% H1 2017% 2015 % 2016
0%
10%
60%
20%
30%
40%
50%
0%
10%
60%
20%
30%
40%
50%
> 5,000500-1,000< 500 1,000-5,000
* Transaction brokered by Knight Frank
ZONA
A6
ZONE
A6
ZONE
A1ZONE CARRET.
COLMENAR
ZONE M-30NORTH
ZONE
M-40NORESTE
ZONE M-30SOUTH
ZONE M-30WEST ZONE
M-30EAST
SECONDARY
CENTRE
CB
D
A-6
A-2
A-3
A-1
A-5
A-4
2
A-4
M-40
M-507
M-40
M-40
M-30
M-30
M-30
ZONE
A5
ZONE
A2
ZONE
A3
Boadilla
Cuatro Torres
Atocha
Retiro Park
Las Matas
Las Rozas
La Florida
Rivas Vaciamadrid
Airpor tPozuelo
TresCantos
Alcobendas
La Moraleja
Manoteras
Julián Camarillo
LasTablas
C.de las Naciones
SS. de los Reyes
ZONE
A4
Take-up in second quarter 2017 outstripped first quarter 2017’s figure by almost 50%.
Other areas
6 7
However, in this regard, we would note the purchase of Suero de Quiñones 42 by the Lladó family office.
More than 60% of office investment in Madrid and Barcelona was carried out by companies headquartered in Spain com-pared to 74% in 2016. However, as men-tioned in our previous report, part of the
share capital of some of these compa-nies comes from overseas investors, as is the case with SOCIMIs for example. The larger number of investment funds now active in Spain has also increased the percentage of transactions completed by companies headquartered in the USA (26.5%) and the UK (9%).
SupplyOn the supply-side, corporate owners have partly regained the leading position they held in 2015 thanks to the big ticket paid for Torre Agbar, which accounted for more than 20% of the year’s total investment volume. However, institutional investors continue to head up the leader board, accounting for 28% of total inves-tment volume in Madrid and Barcelona. These are followed by investment funds (13%) and private investors and family offices (9%).
In terms of supply, thus far this year SOCIMIs have kept a fairly low profile, selling just two properties (Suero de Quiñones 42 and Puerto de Somport 8), which combined accounted for 7% of total investment. However, SOCIMIs are expected to be one of the most active sellers by the end of the year, primarily due to the property rotation criteria which they are legally obliged to fulfil. The sale of Hispania’s office portfolio will be one of the year’s biggest deals, 24 office buil-dings located in Madrid, Barcelona and Malaga, which are expected to reach a market value of more than €500 million.
GRAPH 17
Investor type H1 2017%
INVESTMENT MARKETConfidence in the Spanish economy helped spur the investment market in the first half of the year, with office investment in Madrid and Barcelona breaking above the €1.1 billion barrier, up 32.5% y-o-y.
Office investment in Madrid exceeded €700 million in the first half of the year, 5% more than in H1 2016, whilst in Barcelona the figure reached close to €435 million, 130% more than the €188 million transacted in H1 2016.
Demand and Transactions SOCIMIs and investment funds emerged as the main players in the office inves-tment market in Madrid and Barcelona in H1 2017. In Madrid they accounted for almost 70% of all office investment, whilst in Barcelona they were also joined by real estate companies.
The biggest deal of the year was the acquisition of Torre Agbar by Merlin Properties for €142 million from the Agbar Group. AXIARE’s investment activity was also particularly noteworthy, investing close to €158 million across 4 deals: Puerto de Somport 8, Anabel Segura 14, Miguel Angel 23 and a fourth office building on Avenida Can
Fatjó dels Aurons, in Sant Cugat.
Investment funds followed hot on the heels of the SOCIMIs, acquiring a com-bined total of €370 million worth of office properties across the two cities. In fact, two of the year’s biggest deals have been completed by investment funds: BBVA’s office portfolio valued at €180 million was acquired by Oaktree and FREO and the sale of the Isla Chamartín Business Park to Tristan Capital and Zaphir Asset Management for €103 million, with Knight Frank brokering this second deal.
Real estate companies came in third, representing 12% of the total volume invested (€138 million), with more than half of this relating to acquisitions made by Colonial (which recently approved its conversion into a SOCIMI) via its Alpha II project: Castellana 163 in Madrid and Travessera de Gracia 47-49 in Barcelona. Hines also acquired Banco Popular’s headquarters in Barcelona, at Paseo de Gracia 17. Institutional investors and private investors accounted for the remaining 22%.
Private investors that were highly active in 2016, completing some of the market’s largest deals (Torre CEPSA acquired by Pontegadea and Ecke Inmobilien’s acqui-sition of Gas Natural’s office portfolio) have taken a back seat so far this year.
SOCIMIs and investment funds accounted for a combined investment volume of close to €748 million, more than 65% of the total invested in Madrid and Barcelona.
GRAPH 15
Investment volumeMillions of euros
GRAPH 16
Main investment transactions, H1 2017
OFFICE MARKET. H1 2017 RESEARCH
MADRID
BARCELONA
Source: Knight Frank Source: Knight Frank
ADDRESS TOWN PRICE (M€) SELLER BUYER
PORTFOLIO BBVAMadrid, Barcelona and Valencia
180.00 BBVA Oaktree and Freo
TORRE AGBAR Barcelona 142.00 Agbar Group Merlin Properties
ISLA CHAMARTÍN * Madrid 103.00 Lone StarTristan Capital and Zaphir Asset Management
PASEO DE GRACIA 17 Barcelona 90.70**Popular Banca Privada
Hines
MANUEL CORTINA 2 Madrid 72.00 Mapfre Gmp
COLÓN 1 Madrid 55.00 Barclays CBRE Global Investors
MIGUEL ÁNGEL 23 Madrid 53.40Lico Inm. Particular and SGAE
Axiare
CASTELLANA 163 Madrid 51.00 Confidencial Colonial
ANABEL SEGURA 14 Alcobendas, Madrid 43.50 Blackstone Axiare
PUERTO DE SOMPORT 8 Madrid 41.50 Gmp Axiare
TRAVESSERA DE GRACIA 47-49 Barcelona 41.00 Grupo Bertelsmann Colonial
CASTELLANA 14 Madrid 40.25Tesorería General Seguridad Social
Consorcio Compensación de Seguros
Parque Empresarial Isla Chamartín
* Deal brokered by Knight Frank ** Total price of the deal
€90.7 M. The value of the retail unit was estimated to be €45 M
1,01
2
257
555
734
596
42664
01,01
82,
506
1,86
1
3,05
7
2006 201707 08 09 10 11 12 13 14 15 16
66
565
266
403
271
1,29
578
3
2,53
368
4
2,31
845
7
710
435
INSTITUTIONAL
INVESTMENT
FUNDS SOCIMIS
REAL ESTATE COMPANY
MADRIDBARCELONA
PRIVATE INVESTOR
Source: Knight Frank
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
GRAPH 18
Investor country of origin H1 2017%
USA OTHERS
SPAIN UK
Source: Knight Frank
61.2%26.5%
9%3.3%
GRAPH 19
Madrid CBD Capital values €/M²
ANNUAL MAXIMUM ANNUAL AVERAGE
0
2,000
4,000
8,000
6,000
10,000
14,000
16,000
12,000
2010 2011 2012 2013 2014 2015 H12017
2016
0
2,000
4,000
8,000
6,000
10,000
12,000
2010 2011 2012 2013 2014 2015 H12017
2016
GRAPH 20
Barcelona CBD Capital values €/sqm
ANNUAL MAXIMUM ANNUAL AVERAGE
Source: Knight Frank
Source: Knight Frank
8
Mercado de Oficinas Madrid - Enero 2017
Important notice© Knight Frank España, S.A.U. 2017 This report is published for general information only and is not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank España, S.A.U. for any loss or damage resultant from any use of, reliance or reference to the contents of this document.As a general report, this material does not necessarily represent the view of Knight Frank España S.A.U. in relation to particular properties or projects. Reproduction of this report in whole or part is not permitted without prior written approval of Knight Frank España S.A.U. to the form and content within which it appears. Knight Frank España is a limited liability partnership registered in the Mercantile Register of Madrid with Tax ID No. (CIF) A-79122552. Our registered office is located at Suero de Quiñones 34, 28002 Madrid.
RESEARCH
Humphrey WhitePartnerManaging [email protected]+34 600 919 012
Raúl VicenteAssociateHead of Office [email protected]+34 600 919 023
Teresa TabernaManager Capital [email protected]+34 600 919 154
Rosa UriolHead of Research [email protected]+34 600 919 114
Tamara de la MataResearch Consultant [email protected]+34 600 919 126
For the latest news, views and analysisof the commercial property market, visit
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INVESTMENT MARKETAn analysis of supply by country of origin shows that Spain accounted for more than 60% of the total volume, followed by the US (9%), the UK (6%) and Germany (4%).
Prices and yieldsThe average price in Madrid’s CBD stands at close to €8,200 per sqm, while in Barcelona the same figure has reached €6,900 per sqm.
The highest capital value so far this year was registered in Madrid with the acqui-sition of the Barclays headquarters at Colón 1.
This property attained an average price per sqm of €13,850 versus the €11,425 paid for the Banco Popular headquarters at Paseo de Gracia 17, the highest price per sqm in Barcelona.
The upbeat outlook for the Spanish eco-nomy, combined with the availability of financing has bolstered investor confi-dence and spurred greater activity in the real estate market. The heightened pres-sure to buy, coupled with the lack of pro-duct on the market, has kept yields low at circa 3.9%, although yields for the top prime properties have tightened to 3.5% in Madrid and 4% in Barcelona.
GRAPH 21
Prime yields
MADRID BARCELONA
2.5%
3.0%
3.5%
4.5%
4.0%
5.0%
6.0%
6.5%
7.0%
5.5%
2007 2008 2009 2010 2011 2012 2013 2014 2015 Q22017
20162006
3.9%
4.5%
6.3%
4.0%
5.0%
3.9%
4.0%
European Quarterly Q2 2017
Source: Knight Frank
