Madrid office market exceeds expectations in Q3
Office property take up in the Spanish capital saw a significant boost in the third quarter despite the country’s on-going economic woes, according to global estate agents Savills.
The report suggests that a series of transactions for space over 5,000 sq m – which accounted for 26% of total deals completed - drove the unexpected increase, with the total office space take up for the quarter rising to 70,000 sq m.
Refurbished space was another key feature of the report, as businesses seek to minimise overheads by avoiding costly new-build projects. Three of the largest transactions in Q3 were agreed on refurbished properties, including Alcalá 65, Paseo de la Castellana 50 and Almagro 40.
Despite positive returns from Q3, total sales since the start of January are down 16% on the same period in 2011 to 210,000 sq m, with projections for total sales of 300,000 sq m by the close of the year.
Supply in the Madrid office market rose to 1.6m sq m in Q3, up by a slender 500 sq m compared to Q2. This has pushed the average vacancy rate in the city up from 11.75% to 12% in the third quarter, an all-time high for both supply and vacancy rates.
Despite such increases, the CBD vacancy rate remained below 4% in Q3; suggesting increased supplies are a result of occupiers leaving existing space vacant, rather than new build projects. Projections for 2013 are for 150,000 sq m of additional office space in the market, with 70% made up of refurbished space.
Ana Zavala, director of office agency at Savills Spain, said: “The deterioration of the country’s economic climate has had a direct effect on the Madrid office market, with rents on a continued downward spiral, excess supply and limited take-up.
“However, we have recorded a higher than expected take-up in Q3 and vacancy rates remains at a low level in the CBD compared to other markets. The prospect for the office market is largely dependent on an improvement in the wider economic recovery, which remains uncertain.”
Continued economic fragility has caused office investment in Madrid to stagnate, according to a report from BNP Paribas, with investment volumes – excluding the €400m sale of Torre Picasso – reaching only €100m, a 56% decrease on 2011.
Pablo Pavía, capital markets director at Savills Spain, stated: “We do have a small group of active domestic investors in the market but they are looking for very specific types of property but the supply is just not fitting their requirements. Of the little investment we have seen, both sale and leaseback opportunities and properties with the potential for residential use have proved popular.”