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 Castellana 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 Spain’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 Retiro sqm taken by Grupo CTO at Albarracín 34, Park Julián Camarillo a deal that was brokered by Knight Frank. Atocha 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 Madrid’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.