RESEARCH

MADRID OFFICE MARKET H1 2017

MACROECONOMIC BACKDROP | OCCUPIER MARKET | INVESTMENT MARKET OFFICE MARKET. H1 2017 RESEARCH

GRAPH 3 MACROECONOMIC Vacancy rate* OCCUPIER MARKET

BACKDROP OCCUPIED STOCK AVAILABLE SPACE After overcoming the political uncertainty Draghi’s latest statements regarding Prime rents continue Rents Supply and instability that arose on the back of future Eurozone monetary policy have to trend upwards, events such as the UK’s Brexit vote and confirmed the ECB’s intention to keep the Prime rents continue to trend upwards, So far this year, available office space the US elections in 2016, and that cast a monetary stimulus in place until the end of surpassing the €29 surpassing the €29 per sqm/month mark, has fallen by 6.4%, with the vacancy rate shadow over the economic recovery, the 2017, in order to further boost the current per sqm/month with evermore comparables in excep- standing at 11.8%. first half of 2017 has registered clear signs economic growth momentum. 11.8% tional buildings exceeding the average of growth. mark, with evermore prime rent, meaning that €30 per sqm/ Available space in the CBD declined by According to the latest National comparables in month could easily be reached by the more than 9% during H1 2017. However, Accounting data published by INE, the exceptional buildings end of the year. the considerable amount of refurbished Spanish economy registered 3% y-o-y space that came onto the market over the growth in Q2 2017. The Labour Activity exceeding the The highest rent achieved so far this past year means that the overall amount Source: Knight Frank Survey also highlighted that the number of average prime year was for a small 160 sqm office of available space in the CBD is still 7% *Rate calculated includes high-tech properties let to fund manager Legg Mason at higher in the quarterly y-o-y comparison. employed climbed 2.7% y-o-y in Q2 2017 (planning Reg. NZ 9.4) and the number of unemployed dropped rent. Against this 41, where the incoming 14.4%, pushing the unemployment rate tenant signed €37 per sqm/month. The projects that will add new supply to backdrop, €30 per GRAPH 4 down to 17.22%, the lowest level seen Another property which secured some of the CBD over the next few months inclu- New supply by construction phase since mid-2009. Despite remaining high, sqm/month could the highest rents in H1 2017 was Edificio de three refurbished properties owned forecasts suggest that unemployment will Beatriz, owned by Vyosa, with closing by MAPFRE: Plaza de la Independencia easily be reached by UNDER REFURBISHMENT continue to decline over the next rents ranging between €30 and €36 per 6, Sor Ángela de la Cruz 6 and General UNDER RENOVATION SCHEME WITH LICENSE two years. the end of the year. sqm/month. Perón 40. WORKS IN PROGRESS PLANNED People’s perception of the economic cli- Some lettings in the Secondary Centre Plaza de la Independencia 6, is currently mate has improved, with June’s consumer sqm achieved higher closing rents than in in the pre-let phase and is expected to confidence regaining the positive trend 300,000 previous quarters, with average rents in achieve high occupancy even before the seen in previous months and international 250,000 the area’s best properties standing at refurbishment works draw to a close. The organisations, such as the IMF, upwardly 200,000 close to €18 per sqm/month. Outside of 10,516 sqm Sor Ángela de la Cruz 6 buil- revising ’s economic growth fore- the M-30, closing rents have continued ding will be fully occupied by companies casts to above the Eurozone average and 150,000 to trend upwards since mid-2015, with belonging to the MAPFRE group. Finally, above that of neighbouring countries. 100,000 the average rent standing at around €15 between 5,000 and 8,000 sqm will come The European Central Bank’s lax mone- 50,000 per sqm/month for the best locations in onto the market at General Perón 40 and the out-of-town area. In quality buildings be available for occupancy from the start tary policy has favoured economic 0 growth. However, although the risk of 2017 2018 2019 slightly further afield, rents have also of 2018, as and when the refurbishment deflation is no longer a concern, Mario Source: Knight Frank increased, reaching €11 per sqm/month. works are completed.

GRAPH 5 GRAPH 6 GRAPH 1 GRAPH 2 New supply by property location Variation in vacancy* Growth prospects for the main advanced economies Variation in prime rents GDP growth rate (%) €/sqm/month CBD M30 NORTH * High-tech buildings not included SECONDARY CENTRE M40 NORTH-EAST 2016 2015 2017 2018 sqm (forecast) (forecast) M30 EAST A1 4.0 40.00 2,000,000

3.0 sqm 1,800,000 1,600,000 33.00 300,000 2.5 1,400,000 250,000 2.0 1,200,000 200,000 1,000,000 1.5 29.50 29.00 150,000 800,000 1.0 600,000 24.25 100,000 400,000 0.5 50,000 200,000 0 0 0 USA GERMANY FRANCE ITALY SPAIN JAPAN UK CANADA 2007 08 09 10 11 12 13 14 15 16 17 18 2019 2017 2018 2019 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q2 2017 Source: IMF Source: Knight Frank Source: Knight Frank Source: Knight Frank

2 3 OFFICE MARKET. H1 2017 RESEARCH

Another of the large lettings seen in the Tres GRAPH 7 Cantos SS. de los ZONE ZONE Reyes Variation in total take-up (sqm) and number of transactions CBD was completed by Baker & McKenzie CARRET. A1 COLMENAR Take-up H1 2017: 248,500 sqm Take-up in following the company’s decision to reloca- te from its existing headquarters, located at second quarter Alcobendas DEALS AREA Castellana 92, to the 5,560 sqm property at 900,000 1,000 2017 outstripped M-507 800,000 900 José Ortega y Gasset 29. EY’s relocation to A-1 La Moraleja 700,000 800 first quarter Torre Titania enabled Deloitte to let an addi- 700 Las 600,000 tional 5,340 sqm in Torre Picasso, adding ZONE Tablas 600 2017’s figure A6 ZONE 500,000 yet another large letting to the CBD’s toll. ZONE M-30 ZONE 500 NORTH M-40 sqm 400,000 by almost 50%. Las Matas Manoteras NORESTE 400 A further four lettings over 5,000 sqm were A2 300,000 No. deals La Florida A-6 Cuatro 300 signed outside of the M-30 ring road, parti- M-30 200,000 Las Rozas Torres C.de las 200 ZONE Naciones cularly noting the more than 9,400 sqm let M-30 Airport 100,000 Pozuelo WEST ZONE 100 CBD by La Caixa at Manoteras 20 and the 7,000 Boadilla M-30 A-2 0 0 EAST 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 M-30 sqm taken by Grupo CTO at Albarracín 34, Park Julián Camarillo a deal that was brokered by Knight Frank. Source: Knight Frank M-40 SECONDARY CENTRE M-40 In Julián Camarillo, Bankia purchased Santa ZONE M-30 M-30 Over the coming months the following perty at Ribera del Loira 28 in the Campo Leonor 32, where the company itself plans SOUTH Furthermore, after a 2016 in which the ZONE refurbishment works are also set to be de las Naciones area and the former BNP to occupy 5,746 sqm. A5 lion’s share of office spaces over 5,000 A-3 Rivas Vaciamadrid completed: Estébanez Calderón 3-5 headquarters. Finally, 17,000 sqm will be sqm were let in more out-of-town areas, M-40

A-4 (10,458 sqm) owned by Colonial, and the added to the office market in the M-30 A-5 take-up distribution inside and outside GRAPH 11

full-scale conversion of Velázquez 123 North area when refurbishment works on A-42 the M-30 was balanced in H1 2017. Occupied space inside and outside ZONE (2,345 sqm) from the residential building the Torre Isla Chamartín in Manoteras are ZONE A3 Four of the >5,000 sqm lettings were the M-30 acquired by the family-office Mazabi into concluded over the course of 2018. ZONA A4 signed in the CBD in properties that met a single tenant office building. OUTSIDE M-30 INSIDE M-30 A6 the needs of new tenants. Within this In the Secondary Centre, the extensive 52.8% group, we would highlight two lettings GRAPH 13 refurbishment of Edificio Auditorio at Lettings in properties owned by AXIARE, which Main occupier transactions H1 2017 Suero Quiñones 42, which is let on a long During H1 2017, office take-up exceeded were recently refurbished: firstly, Manuel lease to Uría Menéndez, will be concluded 248,000 sqm, up 13% y-o-y and a similar 50.2% de Falla 7, a 6,252 sqm property, which 49.8% 50.1% 49.9% TENANT ADDRESS AREA MARKET PROPERTY TRANSACTION towards the end of the year. increase to that seen in the number of will be occupied by the Community lettings completed. LA CAIXA Manoteras 20 9,399 M-30 North High-Tech Letting In the out-of-town area, the refurbishment of ’s Department of Social and 47.2% GRUPO CTO Albarracín 34 7,049 M-30 East High-Tech Letting of Juan Ignacio Luca de Tena 6 is schedu- Distribution of take-up and the number Family Policies; and secondly, EBAY’s CONSEJERÍA POLÍTICAS led to be completed at the end of the year, of lettings by size bracket remained very letting of more than 5,470 sqm at Don SOCIALES Y FAMILIA Manuel de Falla 7 6,252 CBD Exclusive Letting thereby adding 3,700 sqm to the M-30 East similar to those seen in 2016. Lettings Ramón de la Cruz 84, where it will house COM. MADRID office area. Another property refurbishment between 1,000 and 5,000 sqm accounted the Ticketbis offices, the online start-up BANKIA Santa Leonor 32 5,746 M-30 East High-Tech Sale José Ortega y that is expected to come onto the market for the highest percentage of take-up; for buying and selling tickets, which it BAKER & MCKENZIE 5,562 CBD Exclusive Letting 2015 2016 H1 2017 Gasset 29 by the end of 2017 is the 12,800 sqm pro- 48% in terms of total area. purchased in mid-2016. Don Ramón de la 360 EXPERIENCE (EBAY) 5,471 CBD Exclusive Letting Source: Knight Frank Cruz 84 DELOITTE Torre Picasso 5,340 CBD Exclusive Letting

ZONASAGE Av. de Europa 19 5,104 A1 Exclusive Letting GRAPH 8 GRAPH 9 GRAPH 10 GRAPH 12 Quarterly take-up performance Take-up by size of letting No. of lettings by size Take-up H1 2017 by area A6AMERICAN EXPRESS Partenón 12-14 4,749 M-40 North-East Exclusive Letting LA LIGA Torrelaguna 60 4,263 M-30 East Exclusive Letting

A5 Other areas Q2 * Transaction brokered by Knight Frank Q1 Q3 Q4 % SQM 2015 % SQM 2016 % SQM H1 2017 % 2015 % 2016 % H1 2017 A2 A6

1.6% 2.6% sqm GRAPH 14 A1 2.4% 1.6% 60% 60% Maximum and minimum closing rents by area Q2 2017 * 600,000 6.8% M-40 36.5% CBD €/sqm/month 50% 50% North-East 4.4% 500,000 37.0 MAXIMUM CLOSING RENT MINIMUM CLOSING RENT 40% 40% 400,000 12.5% 248,500 SQM 30% 30% M-30 300,000 North 19.0 16.8 15.2 14.5 14.5 20% 20% 200,000 11.0 12.0 11.5 11.8 10.0 11.0 8.0 8.0 8.5 18.1% 7.5 13.5% 100,000 10% 10%

M-30 Secondary 0 0% 0% East CBD Secondary M-30 M-30 M-40 A1 A2 A6 2013 2014 2015 2016 2017 < 500 500-1.000 1.000-5.000 > 5.000 < 500 500-1,000 1,000-5,000 > 5,000 Centre Centre East North North-East

Source: Knight Frank Source: Knight Frank Source: Knight Frank Source: Knight Frank Source: Knight Frank * Skewing caused by non-relevant deals has been removed 4 5 OFFICE MARKET. H1 2017 RESEARCH

GRAPH 19 INVESTMENT MARKET Madrid CBD Capital values €/M²

ANNUAL MAXIMUM ANNUAL AVERAGE

Confidence in the Spanish economy Fatjó dels Aurons, in Sant Cugat. 16,000 SOCIMIs and 14,000 helped spur the investment market in 12,000 investment funds the first half of the year, with office Investment funds followed hot on the heels of the SOCIMIs, acquiring a com- 10,000 investment in Madrid and Barcelona 8,000 accounted for a bined total of €370 million worth of office breaking above the €1.1 billion barrier, up 6,000 properties across the two cities. In fact, combined investment 32.5% y-o-y. 4,000 two of the year’s biggest deals have been volume of close to 2,000 Office investment in Madrid exceeded completed by investment funds: BBVA’s 0 2010 2011 2012 2013 2014 2015 2016 H1 €748 million, more €700 million in the first half of the year, office portfolio valued at €180 million 2017 than 65% of the total 5% more than in H1 2016, whilst in was acquired by Oaktree and FREO and Source: Knight Frank Barcelona the figure reached close the sale of the Isla Chamartín Business Park to Tristan Capital and Zaphir Asset invested in Madrid to €435 million, 130% more than the GRAPH 20 and Barcelona. €188 million transacted in H1 2016. Management for €103 million, with Knight Barcelona CBD Capital values Frank brokering this second deal. €/sqm Demand and Real estate companies came in third, ANNUAL MAXIMUM ANNUAL AVERAGE Transactions representing 12% of the total volume invested (€138 million), with more than 12,000 10,000 SOCIMIs and investment funds emerged half of this relating to acquisitions made 8,000 as the main players in the office inves- by Colonial (which recently approved its 6,000 tment market in Madrid and Barcelona conversion into a SOCIMI) via its Alpha 4,000 in H1 2017. In Madrid they accounted II project: Castellana 163 in Madrid and 2,000 for almost 70% of all office investment, Travessera de Gracia 47-49 in Barcelona. 0 2010 2011 2012 2013 2014 2015 2016 H1 whilst in Barcelona they were also joined Hines also acquired Banco Popular’s 2017 by real estate companies. headquarters in Barcelona, at Paseo de Parque Empresarial Isla Chamartín Source: Knight Frank Gracia 17. Institutional investors and The biggest deal of the year was the private investors accounted for the However, in this regard, we would note share capital of some of these compa- acquisition of Torre Agbar by Merlin remaining 22%. the purchase of Suero de Quiñones 42 by nies comes from overseas investors, as Supply Properties for €142 million from the the Lladó family office. is the case with SOCIMIs for example. Agbar Group. AXIARE’s investment Private investors that were highly active On the supply-side, corporate owners The larger number of investment funds activity was also particularly noteworthy, in 2016, completing some of the market’s More than 60% of office investment in have partly regained the leading position now active in Spain has also increased investing close to €158 million across largest deals ( acquired by Madrid and Barcelona was carried out by they held in 2015 thanks to the big ticket the percentage of transactions completed 4 deals: Puerto de Somport 8, Anabel Pontegadea and Ecke Inmobilien’s acqui- companies headquartered in Spain com- paid for Torre Agbar, which accounted by companies headquartered in the USA Segura 14, Miguel Angel 23 and a sition of Gas Natural’s office portfolio) pared to 74% in 2016. However, as men- for more than 20% of the year’s total (26.5%) and the UK (9%). fourth office building on Avenida Can have taken a back seat so far this year. tioned in our previous report, part of the investment volume. However, institutional investors continue to head up the leader board, accounting for 28% of total inves- GRAPH 15 GRAPH 16 GRAPH 17 GRAPH 18 Investment volume Main investment transactions, H1 2017 Investor type H1 2017 Investor country of origin H1 2017 tment volume in Madrid and Barcelona. These are followed by investment funds Millions of euros % % (13%) and private investors and family ADDRESS TOWN PRICE (M€) SELLER BUYER INSTITUTIONAL PRIVATE INVESTOR offices (9%). Madrid, Barcelona SPAIN UK MADRID PORTFOLIO BBVA 180.00 BBVA Oaktree and Freo and Valencia INVESTMENT REAL ESTATE COMPANY BARCELONA USA OTHERS TORRE AGBAR Barcelona 142.00 Agbar Group Merlin Properties FUNDS SOCIMIS In terms of supply, thus far this year Tristan Capital and Zaphir ISLA CHAMARTÍN * Madrid 103.00 Lone Star SOCIMIs have kept a fairly low profile, Asset Management 100% Popular Banca selling just two properties (Suero de PASEO DE GRACIA 17 Barcelona 90.70** Hines 90% 3.3% Privada 9% Quiñones 42 and Puerto de Somport 8), 80% 3,057 MANUEL CORTINA 2 Madrid 72.00 Mapfre Gmp which combined accounted for 7% of 70%

2,533 COLÓN 1 Madrid 55.00 Barclays CBRE Global Investors 2,506 total investment. However, SOCIMIs are 1,861 2,318 Lico Inm. Particular 60% MIGUEL ÁNGEL 23 Madrid 53.40 Axiare expected to be one of the most active and SGAE 50% 26.5% 61.2% CASTELLANA 163 Madrid 51.00 Confidencial Colonial sellers by the end of the year, primarily 1,295 ANABEL SEGURA 14 Alcobendas, Madrid 43.50 Blackstone Axiare 40% due to the property rotation criteria which PUERTO DE SOMPORT 8 Madrid 41.50 Gmp Axiare 30% they are legally obliged to fulfil. The sale 734 565 403 710

596 TRAVESSERA DE GRACIA 47-49 Barcelona 41.00 Grupo Bertelsmann Colonial 20% of Hispania’s office portfolio will be one 1,018 257 1,012 783

684 10% of the year’s biggest deals, 24 office buil- 640 Tesorería General Consorcio Compensación 555 457 435 426

266 CASTELLANA 14 Madrid 40.25 66 271 Seguridad Social de Seguros dings located in Madrid, Barcelona and 2006 07 08 09 10 11 12 13 14 15 16 2017 BARCELONA MADRID * Deal brokered by Knight Frank ** Total price of the deal Malaga, which are expected to reach a Source: Knight Frank Source: Knight Frank €90.7 M. The value of the retail unit was estimated to be €45 M Source: Knight Frank Source: Knight Frank market value of more than €500 million. 6 7 INVESTMENT MARKET

An analysis of supply by country of origin This property attained an average price shows that Spain accounted for more than per sqm of €13,850 versus the €11,425 60% of the total volume, followed by the paid for the Banco Popular headquarters COMMERCIAL BRIEFING US (9%), the UK (6%) and Germany (4%). at Paseo de Gracia 17, the highest price For the latest news, views and analysis of the commercial property market, visit per sqm in Barcelona. knightfrankblog.com/commercial-briefing/

Prices and yields The upbeat outlook for the Spanish eco- nomy, combined with the availability of The average price in Madrid’s CBD financing has bolstered investor confi- stands at close to €8,200 per sqm, while RESEARCH dence and spurred greater activity in the in Barcelona the same figure has reached real estate market. The heightened pres- Humphrey White €6,900 per sqm. sure to buy, coupled with the lack of pro- Partner The highest capital value so far this year duct on the market, has kept yields low Managing Director [email protected] was registered in Madrid with the acqui- at circa 3.9%, although yields for the top +34 600 919 012 sition of the Barclays headquarters at prime properties have tightened to 3.5% in Madrid and 4% in Barcelona. Colón 1. Raúl Vicente Associate Head of Office Agency [email protected] GRAPH 21 +34 600 919 023 Prime yields Teresa Taberna Manager Capital Markets MADRID BARCELONA [email protected] +34 600 919 154

7.0% Rosa Uriol 6.3% 6.5% Head of Research 6.0% [email protected] +34 600 919 114 5.5% 5.0% 5.0% 4.5% Tamara de la Mata 4.5% 4.0% Research Consultant 4.0% 4.0% [email protected] 3.5% 3.9% 3.9% +34 600 919 126 3.0% 2.5% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q2 2017

Source: Knight Frank

Important notice © Knight Frank España, S.A.U. 2017 This report is published for general information only and is not to be relied upon in any way. Although high RECENT PUBLICATIONS standards have been used in the preparation of the information, analysis, views and projections presented in 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 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 relation to particular properties or projects. Reproduction 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 in the Mercantile Register of Madrid with Tax ID No. (CIF) A-79122552. Our registered office is located at Suero de Quiñones 34, 28002 Madrid. European Mercado de Oficinas Global Cities 2017 The Wealth Report 2017 Quarterly Q2 2017 Madrid - Enero 2017

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