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The Office Market
Madrid
Supply
The average vacancy rates in Madrid have continued their downward trend that began in 2014 to stand at 10.6% during the fourth quarter of 2015. This trend will continue over the medium term, although it will be more evident for quality product.
The decrease in available quality product has been much more pronounced in the CBD and peripheral submarkets. Forecasts for new supply coming onto the market over the next three years remain very low across all market areas, at around 100,000 sqm. This means that the potential for renovation and repositioning of properties is high.
Take-up
The economic recovery has finally become a reality over the past 12 months, coupled with greater economic activity and business confidence. This factor, together with an up-tick in employment in the office sector, is translating into a greater demand for space and, therefore, real net absorption of offices in main markets.
The take-up of offices and high-tech properties was 477,969 sqm in 2015, up 31% on 2014 and the highest figure over the 8-year-long economic crisis. Specifically, the CBD and peripheral areas saw takeup of 183,000 sqm and 192,000 sqm, respectively, accounting for almost 80% of total floor space signed up last year.
For the first time since the onset of the crisis, deals for over 6,000 sqm are being signed across all market areas.
Rents
The lack of product is continuing to drive up rental levels, primordially for prime properties in the best locations. Rental levels in the CBD have registered a gradual increase since the second quarter of 2014 to stand at €27.25/sqm/month as of 31 December 2015, an increase of 12.4%. However, as one might expect, the rental levels for Grade A buildings in the CBD has registered even higher rental level increases. The maximum rental levels in secondary and peripheral locations have seen slower growth, standing at €15.75 and €13.50/sqm/month, respectively, while rental levels in satellite areas have remained the same at €10/sqm/month.
Rental level forecasts for the coming years are positive for the Madrid office market as a whole. In fact, Madrid and Barcelona are shaping up to be two of the leading European cities in terms of prime rental growth. This positive trend for maximum prices will ripple out to more peripheral locations, although more gradually according to each submarket. Despite the pick-up in rental levels, they remain low with respect to the all-time highs reached in 2007, which evidences the sharp price correction that was felt following the onset of the crisis.
A pesar del repunte de las rentas seguimos en niveles bajos respecto a los máximos alcanzados durante el 2007, poniendo de manifiesto el fuerte ajuste y corrección que sufrieron las rentas tras el estallido de la crisis.
Barcelona
Supply
The lack of both quality and new-built offices to meet the strong demand in Barcelona will continue to be a major factor over the next two years. The average vacancy rate in Barcelona has fallen from 14% to the current 11% over the past two years. The lack of office space for large companies in the city centre is pushing demand out towards the New Business Areas and decentralised peripheral areas, home to modern buildings adapted to companies’ current requirements. However, over the course of 2016, the few remaining large floor areas in these areas will also become scarce.
Take-up
The economic recovery and the increased activity and business confidence indicators are underpinning growth in office take-up levels in Barcelona, building upon the trend which began last year. In 2015, take-up in the city amounted to 398,000 sqm of office space, up 41% on 2014 and the best figure for the past ten years. Of this figure, 83,000 sqm of office space was signed up in the last quarter of the year. The New Business Areas concentrated the lion’s share of office take-up, accounting for 43% of the total 2015 take-up of 173,000 sqm.
The developments expected to be completed over the next two years will be insufficient to affect future vacancy trends, which will continue their downward trajectory.
Rents
Office rental levels in Barcelona rose on average by 11% over the course of 2015. In the Paseo de Gracia/Diagonal area, where we can find the highest rents in the city, rental levels registered an annual increase of 12.16%, reaching €20/sqm/month in the fourth quarter of 2015.
Source: JLL