RESEARCH

MADRID PRIME RESIDENTIAL 2016

MACROECONOMIC BACKDROP | SUPPLY | DEMAND | PRICES Prime residential assets: safe haven for investors

The performance of the world’s prime Prime residential assets have once again residential market is shaped by several become a safe haven for investors. At factors. This is clearly demonstrated in a time when the economy is marked by the latest Prime International Residential market volatility and negative interest Index (PIRI) figures published in The rates, the real estate sector – especia- Wealth Report. Whilst some prime lly luxury residential - has become the second-home markets such as France safest bet for investors. “Macro data and Italy were still recovering from the Whilst some real estate sectors may economic crisis, other markets such as suggests a positive be affected by Brexit, ’s prime London have hit all-time highs. The good residential market will not only not be trend, but the news is that very few markets included in affected, but may in fact benefit in some the PIRI saw price falls. uncertainty brought cases if investors decide to invest in on by the lack of All the Spanish destinations included Madrid instead of London. in the index (Madrid, Barcelona, , government cannot Although Macro data continues to outline Marbella and Mallorca) registered price a positive trend (record-breaking tou- be ignored. The increases. rist figures, excellent infrastructure and economy continues Prices in the prime areas of Madrid upbeat forecasts for job creation), the to chug along, but analysed by Knight Frank rose 3% y-o- fact remains that political uncertainty has y, testament to the sector’s modest and been hanging over Spain for 10 months stability would create stable growth. Furthermore, in line with now. Over this period, the prime resi- exponential growth”. our forecasts published in our last report, dential sector has benefited from robust Madrid’s prime residential sector has activity, largely because the economy changed significantly. The growth poten- continues to chug along out of inertia. tial in several areas of the city has now However, at Knight Frank we believe that clearly materialised, with prices now on a with a stable government, the sector’s ERNESTO TARAZONA continued upward curve. growth would turn exponential. Partner, Director Residential & Land

FIGURE 1 FIGURE 2 Distribution of available stock by district (%) Distribution of available stock by type (%)

56% 39% 34% 20% 27% 16%

6%

0% 1%

HABANA CHAMBERÍ JUSTICIA JERÓNIMOS 3 bedroom 4 bedroom 5+bedroom

Source: Knight Frank Source: Knight Frank

1 PRIME RESIDENTIAL MADRID RESEARCH

Prime residential assets: safe haven FIGURE 3 for investors Location of available stock in Madrid’s prime area

The performance of the world’s prime Prime residential assets have once again CHAMBERÍ 4.8% CHAMARTÍN 6.3% SALAMANCA 6.5% residential market is shaped by several become a safe haven for investors. At factors. This is clearly demonstrated in a time when the economy is marked by the latest Prime International Residential market volatility and negative interest Index (PIRI) figures published in The rates, the real estate sector – especia- Wealth Report. Whilst some prime lly luxury residential - has become the second-home markets such as France safest bet for investors. Chamberí Ríos “Macro data and Italy were still recovering from the Guindalera Whilst some real estate sectors may economic crisis, other markets such as suggests a positive be affected by Brexit, Madrid’s prime London have hit all-time highs. The good residential market will not only not be trend, but the news is that very few markets included in Nueva España affected, but may in fact benefit in some the PIRI saw price falls. uncertainty brought cases if investors decide to invest in on by the lack of All the Spanish destinations included Madrid instead of London. Hispanoamérica in the index (Madrid, Barcelona, Ibiza, Rercoletos government cannot Although Macro data continues to outline Marbella and Mallorca) registered price Ciudad Jardín a positive trend (record-breaking tou- be ignored. The increases. rist figures, excellent infrastructure and El Viso economy continues Prices in the prime areas of Madrid upbeat forecasts for job creation), the to chug along, but analysed by Knight Frank rose 3% y-o- fact remains that political uncertainty has y, testament to the sector’s modest and been hanging over Spain for 10 months stability would create stable growth. Furthermore, in line with now. Over this period, the prime resi- JUSTICIA 3.6% exponential growth”. our forecasts published in our last report, dential sector has benefited from robust JERÓNIMOS 6.7% Madrid’s prime residential sector has activity, largely because the economy changed significantly. The growth poten- continues to chug along out of inertia. Margin for negociating with tial in several areas of the city has now However, at Knight Frank we believe that existing houses Ibiza clearly materialised, with prices now on a with a stable government, the sector’s Justicia ERNESTO TARAZONA Jerónimos continued upward curve. growth would turn exponential. Partner, Director Residential & Land Available stock of existing houses Niño Jesús

Available stock of new-builds (sqm) Niño Jesús

Adelfas FIGURE 1 FIGURE 2 Distribution of available stock by district (%) Distribution of available stock by type (%) > 10,000 sqm 3,000 sqm - 10,000 sqm 0 - 10,000 sqm

Source: Knight Frank

56% 16% 39% accounted for just 30% of total supply in highlight that prime product buyers The fact that some new-build projects 99 have gone against the norm for luxury 34% Prime new-build supply El Viso: one of the most 2014, whereas this figure jumped to 60% are increasingly opting for new-builds, going on the market feature a higher than developments and gone on the market % 20% 27 in 2015. Consequently, the size of this with take-up in this segment reaching with over 40 units. 16% in Madrid has increa- average number of units is also particu- sought-after areas market has also increased, with available almost 40%. Whereas in previous years, larly noteworthy. Due to the exclusive sed for the first time on In terms of number of bedrooms, four and As the number of buyers continues to 6% supply totalling €820 million, 17% up this figure was in the region of 30%. nature of luxury projects, especially given five-bed homes account for the largest climb, so too does the number of tran- record y-oy. their architectural and technical specifi- 0% 1% With 56%, the Salamanca district accou- share of supply, representing just shy sactions. In fact, in Q1 2016, the number The major change in terms of prime pro- All aspects of the sales marketing pro- nts for the lion’s share of supply (both cations, only a limited number of units go of 80% of total supply. This is a change of transactions involving prime residential duct supply is the considerable upturn cess continue to gradually improve. new-builds and existing housing) and is on sale, in most cases no more than 15 or in trend versus previous years, when properties (both new-builds and existing HABANA EL VISO CHAMBERÍ JUSTICIA SALAMANCA JERÓNIMOS 3 bedroom 4 bedroom 5+bedroom in the amount of new-build stock com- Take-up came in at 31%, in line with the the undisputed leader in new-build pro- 20. However, complexes such as Lagasca 3-bedroom homes held more weighting. housing) rose 30% y-o-y. pared to last year. Luxury new-builds figure booked last year. We would also jects. Source: Knight Frank Source: Knight Frank

1 2 3 The confidence of those who invest in We would particularly note that pri- FIGURE 4 prime products continues to grow and ces have not fallen in any of the Preference by area (%) negotiating margins between asking and city’s districts, rising on average by closing prices, which on average barely 3%. Furthermore, in districts such as exceed 5.5%, are testament to this. Jerónimos, the y-o-y increase in new- 6% 14% builds has reached 8%. As far as existing The Salamanca district remains the homes are concerned, Chamberí and most sought-after area (39%), however Justicia have registered the sharpest interest has notably increased in the El price increases, rising 5% and 4% res- Viso district. In our previous report we 39% 23% pectively. highlighted that the profile of this area was set to rise, and we can now confirm Salamanca and Jerónimos remain the that El Viso is indeed now the prefe- most expensive areas, with average rred choice for an increasing number of prices standing at €7,800 per sqm and 3% 15% buyers, with its market share rising from €8,200 per sqm respectively. 8% to 23%. According to our forecasts, El Viso and HABANA EL VISO CHAMBERÍ Over 56% of buyers opt for homes that Jerónimos are the areas with the greatest require refurbishing, with many preferring upside potential in terms of prices, as JUSTICIA SALAMANCA JERÓNIMOS to personalise their homes with the qua- not only has demand increased in these lity materials and finishes of their choice, areas, but they have a sizeable pipeli- Source: Knight Frank and improve the property’s energy effi- ne that will come to light in the coming ciency in the process. months.

In line with the trend seen last year, local FIGURE 5 Madrid will continue Existing housing 2015 vs. 2016 (€/sqm) buyers still hold more weighting (70%) than international buyers (30%). Latin to appeal Americans (Venezuelans and Mexicans) 5% Madrid will continue to climb up the ran- and Europeans are the most active king of European cities. However, even 4% buyers. if prices in the luxury residential market carry on rising, they will still be modest 2% Prices and a far cry from those reached in

1% Prices in prime areas of Madrid continue European cities such as Paris, London 1% 0.5% to tick steadily upwards. and Milan.

Prices in prime areas of Madrid continue The number of deals closed looks set to continue to increase, reaffirming the Habana El Viso Chamberí Justicia Salamanca Jerónimos to tick steadily upwards.

Source: Knight Frank

FIGURE 6 FIGURE 7 New-builds 2015 vs. 2016 (€/sqm) Demand by nationality

8%

77% 6% 5% 5% 12% 8% 3% 2% 1%

0%

Habana El Viso Chamberí Justicia Salamanca Jerónimos NATIONAL LATAM EUROPE MIDDLE EAST USA

Source: Knight Frank Source: Knight Frank

4 FIGURE 8 How many prime sqm do you get for €1 million?

OBRA NUEVA SEGUNDA MANO

sqm sqm

EL VISO 100 145 JERÓNIMOS RESEARCH Ernesto Tarazona JERÓNIMOS 115 165 SALAMANCA Partner, Director Residential & Land [email protected] SALAMANCA 120 170 CHAMBERÍ +34 600 919 065

Nuria Serranos CHAMBERÍ EL VISO Deputy Director Residential & Land 140 175 [email protected] HABANA JUSTICIA +34 600 919 056 165 180 JUSTICIA HABANA José Gregorio Faría Director Prime Residential [email protected] 170 210 +34 600 919 116

Marta González Deputy Director Prime Residential [email protected] +34 600 919 119 upbeat performance of the prime resi- the coming months, especially Latin Davinia Benito dential sector. Americans and Europeans, partly thanks Research Residential & Land to Madrid’s competitivity with other The already slim negotiating margin bet- [email protected] European markets. +34 600 919 087 ween buyers and sellers will continue to tighten over the coming months. Prime product buyers will remain a key and strategic target for banks that want to Whilst domestic demand will remain remain active in the luxury residential real stable, we are likely to see heightened estate business. demand from international investors over

Important notice © Knight Frank España, S.A.U. 2016 This report is published for general information only and is not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in MOST RECENT PUBLICATIONS this report, no responsibility or liability whatsoever can be accepted by Knight Frank España, S.A.U. for any loss or damage resultant from any use of, reliance or reference RESIDENTIAL RESEARCH RESEARCH RESIDENCIAL to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank España S.A.U. in MADRID relation to particular properties or projects. Reproduction SUELO 2016 of this report in whole or part is not permitted without prior written approval of Knight Frank España S.A.U. to the form and content within which it appears. Knight Frank España is a limited liability partnership registered PRIME CITIES in the Mercantile Register of Madrid with Tax ID No. (CIF) FORECAST REPORT ASSESSING THE PERFORMANCE OF PRIME A-79122552. Our registered office is located at Suero de RESIDENTIAL CITY MARKETS IN 2016

MARKET OUTLOOK 2016 FORECAST RISK MONITOR Quiñones 34, 28002 Madrid.

OFERTA | PRECIOS | DEMANDA | PERSPECTIVAS

The Wealth Report 2016 Residential Land Madrid Madrid New-build 2016 Prime Global Forecast 2016 2016

Knight Frank Market Reports are available at www.KnightFrank.com/Research

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