Madrid Office Market Begins to Revive

The Spanish commercial property and Madrid office markets are beginning to show increased stability, according to a recent report.

The report, Knight Frank's inaugural Spain Commercial Property Market Review, highlights a rise in investor interest in Madrid's office space market in the first half of 2013.

Madrid office space take-up totaled 646,325 square feet in the first half of 2013, up by 60% on the same period for 2012. Several large-scale deals were closed, bolstering investor interest. Notably, telecommunications multinational Vodaphone acquired approximately 164,000 square feet, establishing a new headquarters in Avenida de América.

Prime rent for the Madrid office market went unchanged in the first half of the year, coupled with a decreasing vacancy rate. Following the economic collapse of 2008, a rise in occupancy has sparked optimism.

Sentiment in the investment market is also seeing a marked improvement, as prime yields in Madrid stablise at 6.25%. Investors actively seeking opportunities in Spain are attracted by high yields compared with other European markets, as well as reduced fears of a Eurozone breakup.

Matthew Colbourne, international research associate for Knight Frank London, said "Madrid office take-up in H1 2013 was boosted by some very large transactions, which may not be repeated in H2. However, the fact that occupiers such as Vodaphone have made such large space commitments in the first half of the year indicates that companies are realising that now may be the right time to act, as there are large office spaces available in Madrid at historically low rents. With new office schemes in the pipeline, availability may begin to tighten and prime rents are unlikely to fall any further.

Humphrey White, head of commercial for Knight Frank Spain, said “There has been a definite improvement in sentiment towards Spanish commercial property over the last six months, and an increasingly diverse group of investors are now looking for opportunities in Spain. Investors that have been present in recent years, such as opportunistic funds and private buyers, are now facing competition from a greater variety of institutional and international investors, including the German funds and Latin American buyers.”