Research Spain– Q2 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 Q2 2020
Quick decision making by small and medium-sized enterprises has led to an increase in transactions of <500 sq m in the market
Annual Gross Take-up Economic Overview The historical agreement signed Q1 Q2 Q3 Q4 No. Lettings 1H (right axis) to create a European recovery fund of 750,000mil. of euros, 900,000 450 with which to support the 800,000 400 countries most affected by the crisis, is an important lifeline for 700,000 350 the Spanish economy. Spain will receive 140,000mil. from the 600,000 300 fund, of which 72,700mil. of euros will come as aid through 500,000 250 direct transfers m 400,000 200 sq Despite all this, Spain will enter 300,000 150 into recession and maintain negative growth until Q1 2021, 200,000 100 although according to data from Focus Economics, the 100,000 50 recovery will begin in Q3 2020. Economic growth in 2020 is 0 0 projected at -10%, an 2011 2017 2012 2015 2013 2018 2016 2019 2014 2001 2010 2007 2002 2020 2005 adjustment of more than 11 2003 2008 2006 2009 2004 2000 percentage points from the last Source Savills Aguirre Newman forecast published before the health crisis. Madrid Offices The impact on all areas of the economy is already undeniable. The full extent will largely Take-up and Demand Deal Size depend on the duration and our The impact of the health crisis on the office market In the short to medium term, the COVID-19 crisis capacity to coexist with was reflected by the drop in activity during the will have a greater impact on the survival of small COVID-19. second quarter. and medium-sized enterprises. Nevertheless, the quarterly analysis by surface area range shows The ability to adapt to the new The gross take-up volume recorded between April that these companies are the most agile when it reality will also lessen the and June was around 60,000 sq m, similar to the comes to decision making. While in Q1 2020 the effects of the coronavirus. average quarterly level recorded in 2012, which in transactions of <500 sq m accounted for 38% of According to analysis from the the historical series was a year of lows. the total, in the second quarter this percentage article ‘El teletrabajo en España” was well over 50%. published by the Bank of Spain, The half-yearly figure stood at nearly 170,000 sq 80% of companies were able to m, 52% below the figure recorded in H1 2019, and Deals of between 500 and 1,000 sq m and >1,000 implement remote working 42% less than the average for the last five years. sq m displayed a lesser importance in Q2, although during the period of lockdown the ranges of ≥5,000 sq m and ≥10,000 sq m to prevent their business With regards to the number of registered deals, slightly regained presence compared with the activity from suffering. there was a year-on-year decrease of 33%. However, figures for the first quarter. compared with the last five years this figure stands at -46%, while the reduction in the number of Activity by Market Zone agreements was already being observed in 2018. Interest from the demand within the M-30 ring road is evident, despite the scarcity of availability The average deal size also declined, with the in the urban area. During Q2, 51% of deals and 71% just over 1,000 sq m in H1 2020 representing a of take-up were recorded inside the main ring road. decrease of 28% compared to the 1,400 sq m seen in the first half of the previous year. However, it It should be noted that the two largest should be taken into account that between January transactions in the quarter (both >9,000 sq m) and June 2019, six megadeals (≥10,000 sq m) were were located in Barrio Justicia in the Distrito signed, compared with two in 2020. If we exclude Centro and in Azca, which considerably boosted these agreements, the difference is still negative, the take-up figure for the area. Disregarding these but the reduction would only be -6% (890 sq m in two deals from the calculation, 44% of the take-up H1 2020 and 945 sq m in H1 2019). would be within the M-30.
savills-aguirrenewman.es/research 2 de tamaño medio de las operaciones <10.000 m² registradas hasta septiembre (+11% respecto al nivel de 2018)
Spotlight Madrid Offices Q2 2020
The overall vacancy rate remains at a healthy level (8.35% in Q2 2020), with 3.7% in the prime area
The third deal by size (about 2,150 sq within the 22@ District). The company will solve building (refurbishment of the former Crisalis m) was carried out in Ribera del Loira, its lack of presence at the national level by setting building) at the end of 2019. corresponding to the extension of the up 50 corners in the reception areas of Ibis and complex by a tenant. Novotel hotels. For the next 18 months (H2 2020 and 2021) a little more than 490,000 sq m is expected to enter In the periphery, the Campo de las Current Supply the market, of which currently, 71% is available Naciones area (including the extensions of At the end of June, the vacancy rate of the Madrid (350,500 sq m). Ribera del Loira and Via de los Poblados) office market stood at 8.35%, barely a tenth higher increased its share of total take-up and than the previous quarter. The growth in supply The interest from the demand for the interior deals, while at the opposite end were the was due to the entry of just over 11,000 sq m, of the M-30 is also reflected in the figures of Este and A2 markets. mainly from the vacant space at 34 Velazquez (a committed space, as 59% of the surface area that refurbishment project by the Rosales Group in will be occupied until 2021 is distributed among Flexible Offices the Salamanca district, which already has two the three large areas of the central hub. The recent Two more flexible space operators are tenants) and small second-hand spaces that were signing of 9,100 sq m by Accenture which was expanding their centres in the capital’s reincorporated into the market. the headquarters of Sacyr (refurbishment carried office market, but the average size taken out by Merlin in AZCA) is another example of the up has significantly decreased (in both Regarding vacancy by zone, the interior of the preference for the well-connected environment. cases <1,000 sq m), with the cumulative M-30 registers levels of <5% while the periphery size for H1 in the region of 1,300 sq m, almost reaches 11% (9% in the inner periphery Several projects currently underway within the less than half of the 3,300 sq m registered and 13% in the outer). The analysis by submarket M-30 have favourable consolidation factors and annually in 2019. will indicate the level of consolidation and good transport links, which should result in a the attractiveness for the demand (generally shorter marketing period. In terms of volume, The two centres are located in Urban areas with easy access through the metro), with highlights include the almost 19,000 sq m on Area (in the surrounding areas of vacancy levels much lower than the average in the Plaza de Castilla that is being developed by a Puerta del Sol and Plaza de Castilla), periphery. private investor, situated just behind The ICON although there is increasing interest in building (Paseo de la Castellana 216); the 17,000 consolidated submarkets in the periphery. Future Supply sq m of Velazquez 88 (Colonial’s most significant These provide excellent access (both by During the first six months of the year, the market refurbishment project in the coming months); public and private transport) and are incorporated 54,000 sq m, of which 40% (22,000 and the refurbishment of the Ombú property that close to residential areas, meaning they sq m) was occupied with pre-letting contracts. In Acciona acquired at the end of 2017. could respond to the demand of large terms of volume, two deals stand out: the 9,800 corporations. Corporations would include sq m that Roche secured two years ago in a new Rents these centres in their contingency plans development in MadBit, and the nearly 7,000 Contrary to expectations, COVID-19 has not to prepare for another possible lockdown, sq m that the Grupo Planeta signed in the Celes left an impression on rental prices. The average or to provide comfort to employees by bringing the working environment closer Main Deals - Occupier Market -Q2 2020 to their homes without having to move to the corporate headquarters. Tenant Market Zone Floor Area (sq m) Activity Sector For operators of flexible spaces, the
current situation has favoured a change Confidential * Urban Area 10,650 Confidential in business model and in the layout of spaces. In order to prioritise the safety and wellbeing of occupiers, many have Accenture CBD 9,100 IT returned to the business centre format, opting for closed offices and private areas Ferrovial Northeast 2,150 Real Estate - Construction while reducing coworking and common work areas. Manifiesto * Urban Area 1,900 Business Services The interest from corporate demand is not
limited to the large centres of business Clarins A1 1,700 Industry activity (Madrid and Barcelona), with it increasingly common to find signs for flexible office operators in secondary EPICOM * A3 1,500 IT cities, such as Valencia, Seville, Bilbao and Malaga. Geotab Urban Area 1,500 IT Wojo, owned by the Bouygues real estate group and the Accord hotel company, will open its first Spanish centre in Barcelona Esindus North 1,400 Business Services in September (8,300 sq m signed in June
2019 for a building under construction Source Savills Aguirre Newman / *advised by Savills Aguirre Newman
3 Spotlight Madrid Offices Q2 2020
To date, COVID-19 has not had an impact on rents. The average closing value in Q2 2020 registered a year-on-year and quarter-on- quarter growth, and the achievable levels remain stable
closing value recorded in Q2 2020, Vacancy Rate and Rents calculated with all rents identified in transactions in business buildings (for Average Closing Rent Prime CBD Rent Vacancy (right axis) exclusive office use and semi-industrial 50 16% buildings), was almost €19 per sq m/ 45 month, representing a 7.6% y-o-y increase 14% 40 and a q-o-q growth of nearly 13%. 12% 35 This growth can be mainly attributed 30 10% to the small sample size and the
month 25 8% concentration of transactions in quality 20 buildings (which always achieve high m/ 6% 15 rents). sq / 4% € 10 The highest value recorded (>€40 per sq 5 2% m/month) took place in a 330 sq m space 0 0% in a building on Serrano (CBD), although of particular note is the level reached by 2011 2017 2012 2015 2013 2018 2016 2019 2014 2001 2010 2007 2002 2005 2003 2008 2006 2009 2004 Accenture (above €30 per sq m/month) 2000 Q2 20 in the pre-let area of the building in Azca Source Savills Aguirre Newman (CBD) currently under refurbishment by Merlin. Future Supply by Marketing Status - 2H 2020 - 2021
For the time being, the solid fundamentals Speculative Commited in the more consolidated submarkets 350,000 act as a protective barrier, leaving the achievable rents at the same level as the 300,000 previous quarter, i.e. €35 per sq m/month in Prime CBD, and €18.50 per sq m/month 250,000 in Prime outside the M-30. 200,000 The evolution of economic activity, net m take-up and above all, availability will sq 150,000 largely determine the progress of the market and the rental performances. 100,000
Moreover, prices will vary depending on 50,000 the areas and the quality of assets. 0 Investment 2H 20 2021 Investment activity in the Madrid office Source Savills Aguirre Newman market in Q2 was greatly affected by the health crisis. The lack of mobility within Madrid Investment Market teams brought the market to a halt, with several transactions left on standby, Q1 Q2 Q3 Q4 Transacted Assests 1H (right axis) the Due Diligence (DD) phase of open 5,000 50 processes extended and decision making 45 delayed. 4,000 40
€ 35 Nevertheless, between April and June, 3,000 30 several transactions carried over from mill. 25 previous months were signed. 2,000 20 15 Investment volume during the first half 1,000 10 of the year reached just over €715m, 5 representing a 29% y-o-y decrease, in line 0 - with the 32% adjustment recorded at the national level. 2011 2017 2013 2015 2018 2016 2019 2014 2001 2010 2007 2003 2002 2020 2005 2006 2009 2004 2000 Compared to the same period last year, it 2008 (*) 2008 should be noted that there was an absence 2012 (**) of portfolios in the market, so comparing Source Savills Aguirre Newman / *excluding Ciudad Financiera / **excluding Torre Picasso savills-aguirrenewman.es/research 4 Spotlight Madrid Offices Q2 2020
Despite the decline in investor activity in Q2, €1,900m has been identified in the Madrid pipeline, 40% of which is already in the DD phase
the figures for single asset transactions, the H1 2020 volume is 43% higher than Outlook that of H1 2019. • The office market is closely related to the country’s economic growth. Forecasts The shortage of product inside the for the end of the year range from -7% to -16%, depending on the agency, with a M-30 continues to divert attention to consensus around -10% (according to July data from Focus Economics), the periphery, always giving priority to projecting a sharp fall in the annual take-up volume. consolidated submarkets that are easily accessible by public transport. • Although it is still early to give a figure, all indications are that gross take-up will not reach 400,000 sq m, representing a drop of between 35% and 45% compared The core and core+ products accounted to the previous year, and between 20% and 30% compared to the annual average for nearly 90% of total transactions, and in the historical series. everything indicates that investors will • The latest published data regarding the labour market (EPA Q2 2020) puts the continue to focus on this type of product unemployment rate at 15.33%, or 3.36 million unemployed. It should be noted that in order to minimise the risk brought this figure does not take into account workers on the national furlough about by the post-COVID uncertainty. programme, which increased by 2.8 million in this quarter. In total, 3.4 million There are some deals underway in the people are out of work either due to the partial inactivity of companies (1.6 million) value added category, but in this case the or layoffs (1.8 million). location is an essential factor. • The impact of the economic situation on occupiers in the Madrid office market International funds maintain their could force companies to close or reduce the size of their staff, with the interest in the Madrid market. Up until consequent freeing up of space and an increase in the vacancy rate. June, cross-border capital accumulated 75% of the total volume. By origin, the USA • The strength of rents will be closely related to occupancy levels and the quality of was the leader with three deals and more buildings. Occupiers increasingly value safety and hygiene, so sustainability and than €155m, followed by France with two wellness will be factors to consider. agreements making up €57.5m. • Until the health crisis is under control, remote working will coexist with on site work. The period of lockdown has revealed the importance of teams and the need Before the health crisis, the Madrid office market had strong fundamentals: annual to share ideas and projects in friendly working environments. Employee health take-up in recent years of >500,000 sq m, remains a priority, but with the incorporation of more teams into the new work controlled vacancy rate, moderate entry routine (under strict security protocols), it will be necessary to adapt spaces to the of new space into the market through new new reality (restricting common areas, increasing the space between posts to development and refurbishment projects, maintain social distancing, etc.). Despite the success of remote working, offices and healthy rental growth. These factors are still needed. According to the Savills Office FiT survey, 89% of the respondents were and still are an important base on believe that offices remain essential in the post-COVID era. which to establish the investor strategy. • Nearly 3,700 mill. of euros of investment has been identified in the pipeline at national level, of which just over 1,900 mill. of euros corresponds to the Madrid Yields market. The core and core+ product accounts for most of the activity, prioritising Despite the decline in activity in the both the location and quality of the building. In the value added type, the location investment market, there is no evidence to is especially relevant. suggest a variation in yield stability, either in the business district (3.25%) or outside • Off-market processes are gaining increasingly more importance in the market the M-30 (4.75%). (52% of the product in the market accounts for 62% of Madrid’s pipeline), avoiding rivalry and price competition. Tighter credit conditions could result in a downward price adjustment, leading to a slight rebound in yields.
Main Deals - Investment Market Q2 2020
Asset Zone Purchaser Vendor
Ctra. La Coruña, km. 16,400 A6 IBA Capital Partners Naropa
Julián Camarillo, 11 East Catella Private Investor
Zona Diversia * A1 Confidential Confidential
Sourcee 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.
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