According to Savills latest Madrid office market report the third quarter of 2013 recorded a total investment turnover of €70 million, representing a 42% increase year-on-year.
According to Savills latest Madrid office market report the third quarter of 2013 recorded a total investment turnover of €70 million, representing a 42% increase year-on-year. This, the firm highlights, brings the total volume so far in 2013 to €275m, almost triple the €95m transacted in the same period in 2012 (excluding the €400 million Torre Picasso deal). This rising activity in the investment market is also reflected in the number of deals completed, which has increased by 71% in Q1 to Q3 2013 against 2012.
Domestic investors continue to dominate the Madrid office market, accounting for 57% of activity in the first three quarters of 2013. Savills notes that this represents a decrease compared with the 75% share recorded in the same period in 2012 illustrating the ongoing return to Spain of cross border investors including buyers from Europe, North and South America. Overall, Madrid retains the majority share of office deals with achievable prime office yields in the city’s CBD at 6% or lower for trophy assets with lot sizes of less than €30million. However the firm has observed that Barcelona is attracting more interest, accounting for 45% of Spanish office transactions so far in 2013.
Luis Espadas, head of capital markets at Savills Spain, says: “The mood on Madrid’s office investment market is still cautious but it is certainly brightening. Overall prime office assets in Madrid’s CBD remain the favourite with investors and we are aware of a number of buyers keen to complete purchases before the end of the year. The problem is matching demand with supply.”
On the Madrid occupier market, take-up has increased by 27% year-on-year to almost 270,000 sq m in the first three quarters of the year, although Savills highlights that this increase is in part due to several very large lettings in Q113. Going forward, with a several more unusually large lettings expected to sign before year end the firm forecasts total take-up could reach 350,000 sq m, representing a 25% year-on-year rise. However the firm states that this notable increase in take-up levels is not reflective of the overall market, where activity is still limited.
The research shows that 56% of lettings in Q313 were for space located within the M-30. The firm believes that many of these lettings are tenants returning to the city having left in recent years due to financial challenges. Ana Zavala, head of office agency at Savills Spain, explains: “The fall in rents and increase in available vacant space in central Madrid has enabled the return of many corporations that had previously chosen to relocate out of the city centre in order to rationalise costs. These corporations have a growing supply of modern office stock to choose from as landlords took advantage of the slowdown on the leasing market to refurbish their properties. Historically, outdated office space has been one of the greatest issues with Madrid’s office stock.”
Savills data shows that 75% of new space in the pipeline for the rest of 2013 and 2014 is refurbished stock. Speculative developments are still a rare occurrence on the Madrid office market as developers remain cautious and are generally limited to owner-occupied schemes. In terms of vacancy, the overall Madrid office vacancy rate currently stands at 14% and just above 7% in the CBD.