Research Spain – Q4 2020
SPOTLIGHT Savills Research Madrid Offices de tamaño medio de las operaciones <10.000 m² registradas hasta septiembre (+11% respecto al nivel de 2018)
Spotlight Madrid Offices Q4 2020
The current situation makes it difficult to estimate the space requirements of office occupiers in the medium to long term. The implementation of remote working for a percentage of the workforce will not correspond to an equivalent reduction in space
Annual Take-up Economic Overview Economic growth in Q3 2020 1T 2T 3T 4T No. Deals (right axis) (+16.7% q-o-q) exceeded expectations, but the impact of 900,000 800 the second wave is expected to 800,000 have left its mark on the Q4 2020 700 figure. According to Focus 700,000 Economics in January 2021, the 600 Spanish economy is expected to 600,000 have slowed down its positive 500 evolution, returning to the red 500,000 400 (-3.2% q-o-q). In the annual total, m 400,000 the fall is estimated to reach -11.8% sq compared with 2019. 300 300,000
200 The third wave of infections could 200,000 impact the Q1 2021 figures, although the start of the 100,000 100 vaccination process should steadily alleviate their effects on 0 0 the economy. 2011 2017 2013 2012 2015 2018 2016 2019 2014 2001 2010 2007 2003 2020 2002 2005 2008 2006 2009 2004 2000
Key factors favouring economic Source Savills Aguirre Newman recovery will be the efficacy of the vaccine along with the drastic reduction in viral transmissions. Madrid Offices In terms of the labour market, the number of people registered with Take-up and Demand Remote Working Social Security at the end of Q4 2020 ended with a gross take-up volume Much has been said about remote working December stood at 18.9 million. of almost 85,500 sq m, distributed across 76 regulations and the implementation of working This represents a very slight fall transactions. In contrast with the first three from home, but until the country’s unprecedented compared with the previous quarters, no megadeals (≥10,000 sq m) were situation comes to an end, it will be difficult to month (-0.4%, i.e. 69,000 people recorded and, even excluding the four deals of more estimate the real space needs of each company. left the system), although in than 10,000 sq m between January and September, On the other hand, remote working will not be comparison with the data for there has been a steady growth in take-up since Q2. applicable for all business activities, and the sector March (the start of the health will largely determine the degree of adaptation crisis), this figure constitutes a The annual total for 2020 stood at just over 355,000 needed for this new way of working. Moreover, growth of 2%. Excluding the sq m, 43% down year-on-year and 29% below the the possibility of remote work will depend on the 755,613 workers furloughed as of average annual volume in the historical series type of job within the company, for example the 31 December from the total (close to 500,000 sq m). It is important to note convenience of carrying out work away from the number of people registered, the that the annual total slightly exceeded the closing headquarters. net number of workers barely forecast of Q3 (at which point the accumulated reaches 18.15 million. total was 270,000 sq m), when the annual volume It should also be noted that the voluntary nature of was predicted to be between 335,000 sq m and remote working means that it is difficult to make 350,000 sq m. medium- to long-term decisions at the present The State Public Employment time. In any case, incorporating remote working Service registered 3.9 million Within Europe, in the cities monitored by Savills, into standard practice in many companies will unemployed at the end of the take-up declined by 38% year-on-year. not always imply a reduction in space. In order to year, an increase of 1% compared transform company headquarters into meeting to November and the loss of In terms of number of transactions, the 300 points, it will be necessary to redesign spaces, almost 340,000 jobs since March. agreements fell 42% short of the more than 500 giving more weight to common work areas to the recorded in 2019. detriment of individual workstations. Therefore, The recovery of the labour market the implementation of remote working for part is expected to be much slower The health crisis has had a strong impact on of the workforce does not imply an equivalent and it will take several years Madrid’s office market. A large part of the business reduction in operational space. before the pre-COVID sector has slowed down or stopped their search unemployment level is reached. for offices as they wait for some clarity, not only in the economic outlook, but also in work trends following the end of the pandemic. savills-aguirrenewman.es/research 2 Yo hablaría del incremento de actividad del Sector Público, de tamaño medio de las operaciones <10.000 m² sanidad, etc... Te propongo algo como : "Destacar el incremento de registradas hasta septiembre (+11% respecto al nivel la demanda en 2020 especialmente del sector público, empresas de 2018) relacionadas con la tecnología y la sanidad"
Spotlight Madrid Offices Q4 2020
The most active sectors in 2020 were public administration, technology and healthcare, which grew both in terms of take-up and number of deals signed
Deal Size Activity Sector firms which have undertaken certain projects In Q4, deals of <500 sq m again led the Although professional service firms continue to requiring increased staff while others have had to market activity (43%), but it is worth lead market activity, their share declined notably increase the density ratio in their offices. noting the increase in the weight of deals during 2020 (by more than 14 percentage points). of >1,000 sq m. These went from 22% in Q3 They represented only 21.6%, compared to 30% in Additionally, in order to provide meeting points and 25% in the accumulated figure between the historical series. or workspaces for employees without the need to January and September, to 29% in the last travel to headquarters, we will see decentralised quarter of the year. On the opposite end of the spectrum, sectors that teams working in flexible spaces close to their In the annual total, on the other hand, grew in presence included technology, energy homes. As a result, peripheral locations are the highest growth was recorded in the companies and those related to distribution, in gaining importance. medium-sized surface area range (between addition to public administration which increased 500 sq m and 1,000 sq m), from 23.3% in from 2.6% in 2019 to 13.8% in 2020. 2019 to almost 30% in 2020. Current Supply The 17,300 sq m of take-up in Manoteras by INE in The just over 1.28 million sq m of vacant space The presence of megadeals (>10,000 sq m) Q3 accounted for a large part of total volume from in Madrid’s office market at the end of Q4 remained stable (barely increased by two the public sector (37%). Along with other public represented 9.3% of the total stock. During tenths), although there was a fall in the sector take-up, it is worth noting that activity was 2020, the stock grew by 1.3%, while the vacancy average deal size (>20,000 sq m in 2019 constant. During Q4, the regional government was rate maintained a steady rise, with a 6.6% y-o-y and around 14,000 sq m in 2020). the main player, as several regional government increase. In the annual total, growth amounted departments signed close to 13,000 sq m in to just over one percentage point, with a more When analysing the average deal size, different spaces in the northern quadrant of the significant increase in the second half of the year. excluding transactions of >10,000 sq m, city. there was a moderate increase (only 3%), Supply has entered the market through the release from 980 sq m in 2019 to 1,006 sq m in Flexible Offices of second-hand space, but mainly from projects 2020. The health crisis has also affected the expansion under development and refurbishment, which has plans of flexible space operators. This market affected smaller markets to a greater extent. One Activity by Market Zone recorded several deals during 2020, although they example is the Prime area, which has reached a The location of three of the four megadeals represent barely a third of those recorded in 2019, 6.3% vacancy rate due to the entry of two new outside the M-30 has favoured the with an 80% decline in take-up. vacant buildings (Paseo de la Castellana, 16 and distribution of take-up in the periphery It is worth noting the decentralisation of flexible Paseo de la Castellana, 94). (both inner and outer), which increased space work centres, which already were located in its market share. In fact, the markets in submarkets on the periphery. The latest example Future Supply the central hub recorded a decline of four is Spaces, which will occupy a floor in the Helios Over the next 24 months, just over 520,000 sq m percentage points in terms of take-up and complex (ING’s new headquarters) near Campo de are expected to be added, of which 16,000 sq m eight percentage points in signed deals. las Naciones. will come in either owner-occupied (19%) or pre- let tenants (17%). The remaining 361,000 sq m are The submarkets with the highest take- Occupiers of traditional office space value currently still available. up activity in 2020 were MadBit and flexible workspaces in the same building or in Manoteras, with 11% and 9%, respectively, the immediate vicinity. In fact, in the current New vacant space will mainly increase the accounting for a third of the total market circumstances, a significant part of the demand for supply of MadBit, with 72,500 sq m across outside the M-30. Furthermore, the these spaces comes from companies with specific five projects under development, followed by number of deals they accumulated was needs due to works being carried out in their usual Barrio de Salamanca, with 33,700 sq m over five significant, with 25% of total transactions headquarters. Further demand has come from refurbishment projects. in the periphery.
As for the interior of the M-30, the Main Deals - Occupiers Market Q4 2020 northern section of Castellana (Azca and its immediate surroundings, Cuzco, Tenant Market Zone Floor Area (sq m) Activity Sector Plaza de Castilla and CTBA) accounted for 37% of the space taken up and 35% of CAM * CBD 7,800 Public Administration transactions. The average deal size reflects the profile of demand in this area and the characteristics of the available space. While Avatel A1 7,000 IT large corporations opt for Azca and the towers north of Castellana (taking up 1,700 Glorbal Alumni * Urban Area 6,200 Business Services sq m on average), most spaces let around Orense and Cuzco are between 400 sq m and 550 sq m. Celgene North 6,000 Energy
Europ-Assistance CBD 4,000 Insurance
Fuente Savills Aguirre Newman / *advised by Savills Aguirre Newman
3 Spotlight Madrid Offices Q4 2020
The decrease in demand and the increase in supply resulted in a decline in rents, both in the average closing value and achievable rents per zone
Although several of the largest projects Vacancy Rate and Rents (>10,000 sq m) are located within the M-30, the periphery will account for 59% Average Closing Rent Prime CBD Rent Vacancy Rate (right axis) of new vacant space. 50 16% 45 Rents 14% 40 The average market rent, calculated with 12% the data from deals in business buildings, 35 declined by 2.4% compared to 2019, 30 10% standing at €17.85 per sq m/month at the month 25 8% end of 2020. m/ 20
sq 6% /
€ 15 The drop in demand and the increase in 4% supply have led to certain declines in rental 10 values. 5 2% 0 0% The highest rental level (>€40 per sq 2011 2017 2013 2012 2015 2018 2016 2019
m/month) registered a decrease of 3% 2014 2001 2010 2007 2003 2002 2020 2005 2008 2006 2009 2004 compared to the highest value of 2019. 2000 Both rents were located in the CBD. Source Savills Aguirre Newman
The achievable Prime CBD rent stood at Future Supply by Marketing Status - 2021 - 2022 €34.50 per sq m/month and prime outside the M-30 reached €18 per sq m/month. Speculative Commited Secondary rents within the M-30 ended the 400,000 year at €24 per sq m/month and secondary rents outside the M-30 at €11.75 per sq m/ 350,000 month. On average, the achievable values recorded a 3% y-o-y decrease. 300,000
250,000 Investment After an excellent start to the year, there ² 200,000 m was a slowdown in the market, coinciding with the months of lockdown. Uncertainty 150,000 and mobility restrictions halted many 100,000 of the processes underway, although a number of deals were nevertheless closed. 50,000 The de-escalation phase at the end of the first state of emergency reactivated the 0 2021* 2022* market, which grew steadily in terms of both volume and number of transactions. Source Savills Aguirre Newman
In fact, the fourth quarter recorded the Investment in the Madrid Office Market best investment figure and number of deals since the beginning of the pandemic Q1 Q2 Q3 Q4 Transacted Assets (right axis) in the Madrid office market. The just 5,000 100 over €400m, distributed across 12 deals, reflected a 16% q-o-q increase in volume 90 and a 19% rise in the number of deals. 4,000 80 € 70
The year ended with close to €1,500m, mill. 3,000 60 representing 68% of the national total 50 (around €2,200m), in line with Madrid’s 2,000 40 71% share in the historical series. In the 30 year-on-year comparison, as expected, 1,000 20 the impact of COVID-19 was seen in the 10 39% decline in volume and the 28% drop 0 0 in the number of deals. In terms of assets 2011 2017 2013 2015 2018 2016 2019 transacted, there was a drop of 58% due to 2014 2001 2010 2007 2003 2002 2020 2005 2006 2009 2004 the significant weight of portfolios in 2019 2000 2008 (*) 2008 (16 assets sold in 10 portfolios), while in 2012 (**)
2020 only single asset transactions were Source Savills Aguirre Newman / *excluding Ciudad Financiera / **excluding Torre Picasso savills-aguirrenewman.es/research 4 Spotlight Madrid Offices Q4 2020
Solid market fundamentals have kept yield stable in core and core+ products. On the other hand, moderate expectations in rental growth and the rise in availability have favoured increases in value-added and opportunistic products
recorded. Outlook Core and core+ products accounted for 86% of total volume, demonstrating a clear • The economic situation remains closely linked to the evolution of the health commitment to minimising risks in times crisis. The full impact of the second and third waves on the economy remains of uncertainty. The locations with most to be seen, but the performance of the Business Confidence Index (BCI) has activity were inside the M-30 and very been improving steadily since Q3, providing an optimistic outlook for the consolidated submarkets in the periphery office market. The BCI has grown by 4% q-o-q in Q1 2021. (both inner and outer). • According to Focus Economics, the national economy will emerge from International investors remained negative growth in Q2, which could lead to the reactivation of the occupier interested in the Spanish market. In market. the annual total, cross-border capital • Furthermore, several deals that began in late 2020 are expected to be accounted for 68% (72% in Spain). completed in the course of 2021. Comparing the first quarter with the rest of the year, the two transactions of >€100m • The incorporation of new space from projects under development and raised the share of international capital refurbishments will increase the volume of supply, while at the same time, area to 75%, but between April and December, freed up by companies in the process of resizing their offices will also enter international players accumulated 63%. the market, favouring an increase in vacancy rate.
In the distribution of volume by type of • The imbalance between supply and demand will keep rents under pressure, product and investor origin, international mainly in outdated product and assets that do not meet the high standards of capital is clearly directed towards core current demand, as well as in more decentralised submarkets with weak and core+. Meanwhile, domestic capital, fundamentals. with greater insight into local market • The investment market still has a high level of liquidity. During 2021, investors dynamics, has also opted for value added will continue to be very focused on core and core+ product, although the and opportunistic products, but always in scarcity of these types of assets could divert interest towards a value-added locations with solid fundamentals, limiting profile or new developments, provided that the location is appropriate. exposure to risk. • In view of the prolonged nature of the pandemic, some market players are The average annual price stood at €40.7m betting on products for repositioning, taking advantage of the months of (-15% y-o-y), and, as usual, the average uncertainty, with the plan of returning to the market post recovery. deal size carried out by nationals was more modest than those involving internationals • On the other hand, value added and opportunistic asset owners are already (€33.5m compared to €45.3m, respectively). undertaking price reductions, unlocking some of the supply that is currently stagnant. Yields At present, the performance of yields depends more on the type of product than on the location.
While yields in core and core+ assets have remained stable, the value added and opportunistic product has registered increases. On the one hand, this is due to the lower expectation of rental growth and, Main Deals - Investment Market Q4 2020 on the other, due to the increase in vacancy in certain locations. Asset Market Zone Purchaser Vendor
In terms of financing, core and core+ products continue to have access to credit, Ombú, 3 * Urban Area Inmocaixa Gonvarri while value added, opportunistic and development products may find it difficult Titán,8 * Urban Area Grosvenor UBS to qualify for loans.
Francisco Gervás, 10 * Urban Area Confidential Zurich
Príncipe de Vergara, 108 Urban Area UBS Blackstone
Rufino González, 21 East Resource Capital Partners Teyamé
Source Savills Aguirre Newman / *advised by Savills Aguirre Newman
5 Savills Aguirre Newman Research We carry out a thorough and objective analysis of the real estate market in order to provide our clients with accurate information on the current situation in each of the sectors, helping them make the right decisions at each moment.
Oficinas
Hipólito Sánchez Head of Offices +34 93 439 54 54 [email protected]
Ana Zavala Ángel Estebaranz José María Revuelta Director Office Leasing Director Office Leasing Associate Director Capital Markets +34 91 319 13 14 +34 91 319 13 14 +34 91 319 13 14 [email protected] [email protected] [email protected]
Research
Gema de la Fuente Pelayo Barroso Isabel Gil Research Research Research +34 91 319 13 14 +34 91 319 13 14 +34 91 319 13 14 [email protected] [email protected] [email protected]
Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This bulletin is for general informative purposes only. Savills accepts no liability whatsover for any direct or consequential loss arising from its use. It is strictly copyright and reproduction of the whole or part of it in any form is prohibited without permission from Savills Research. © Savills Commercial Ltd.