Madrid office market sees Q3 take up boost despite continued economic strain
According to Savills latest Madrid office market report, take-up in the third quarter of 2012 exceeded all expectations reaching 70,000 sq m, despite ongoing economic difficulties. The firm notes that this boost was primarily due to a number of larger transactions of over 5,000 sq m, which accounted for 26% of take-up during this period.
The international real estate advisor finds that the increase of refurbished space coming to the market was an instrumental factor in Q3 12 take up numbers with three of the largest transactions in this time period agreed on this type of space, including Alcalá 65, Paseo de la Castellana 50 and Almagro 40.
Despite a higher than expected take up in Q3 12, the total accumulated figures since January stand at 210,000 sq m, which is down 16% year on year. Savills predicts that the total take up for 2012 will be approximately 300,000 sq m.
Savills reports that supply in the Madrid office market rose to 1.6 million sq m in Q3, up from 1.55 million sq m in the previous quarter. This has pushed the average vacancy rate in the city up to 12%, from 11.75% in Q2 12, and marks an all time high in terms of supply and vacancy rate. However, the firm notes that the CBD vacancy rate remained below 4% during the third quarter and highlights that the increase in supply is predominantly due to occupiers vacating existing space rather than new space being delivered. Looking forward to 2013 an additional 150,000 sq m of offices are due to come to the market, 70% of which is refurbished space.
Ana Zavala, director of office agency at Savills Spain, comments: “The deterioration of the country’s economic climate has had a direct effect on the Madrid office market, with rents on a continued downward spiral, excess supply and limited take-up. However, we have recorded a higher than expected take-up in Q3 and vacancy rates remain at a low level in the CBD compared to other markets. The prospect for the office market is largely dependent on an improvement in the wider economic recovery, which remains uncertain.”
The office investment market in Madrid remains stagnant according to Savills as a result of the fragile economy. Total investment volumes in the city from January to September 2012 stand at ?100m, excluding the ?400 million sale of Torre Picasso, which is a 56% year on year decrease.
Pablo Pavía, capital markets director at Savills Spain, comments: “We do have a small group of active domestic investors in the market but they are looking for very specific types of property but the supply is just not fitting their requirements. Of the little investment we have seen, both sale and leaseback opportunities and properties with the potential for residential use have proved popular.”
Yields in both the CBD and the prime areas outside the M-30 are currently 100 basis points higher than in Q3 2011 at 6% and 7.50% respectively. Savills predicts yields will remain stable towards the end of 2012.