Spanish Office Market Is Coming Up

Transcription

1 Spanish Office Market Is Coming Up Direct Investment in Madrid & Barcelona Office Markets > The positive trends followed by the Spanish economy in the past few months are now boosted by the reactivation in financial markets, to which the economy is responding with growth and employment. 6,25% 6,00% 6,00% 6,00% 5,75% 5,50% > The lack of new speculative office space and a demand beginning to strengthen have led to reductions in availability rates with respect to the first quarter of 2014 and this trend is expected to continue. 5,25% 4,75% 4,25% > As a result from the strong demand for investment product in Spain, we have seen prime yields tightening to levels below 5% in Madrid, although in Barcelona they remain stable in the region of 5.50% > The price adjustments in Spanish office market and the favourable prospects for the Spanish economy are driving high levels of investment demand and a significant increase in investment activity > The change of cycle in Madrid and Barcelona office markets is shown by a clear recovery in take-up figures and by the rental increases registered not only in prime areas, but also for Grade A buildings in consolidated locations Investment volume Prime yield

2 Economic Context After the strong adjustments experienced in the last six years, the Spanish economy has entered into a growth phase and all economic players are optimistic with regards to their prospects for the country. This is having a deep impact on real estate in the shape of a huge increase in transaction volume, both for rental and investment markets. Quarterly growth of Spanish GDP was 0.9% between January and March, leaving a year-on-year increase of 2.6%. Forecasts for 20 show GDP growth in the region of 3%. The good performance of the Spanish exports, together with the consolidation of the upwards trend in internal demand, are pushing the Spanish economy to a phase of sustained growth not seen since Annual GDP Variation 3,1% 3,3% 3,6% 4,1% 3,5% 0,8% 1,9% 1,8% 3,1% 3,0% 0,9% 0,3% -3,8% -0,2% 0,1% 1,9% 1,5% 1,5% 2,0% -0,4% -0,4% 1,2% 1,7% -1,2% -1,6% -4,3% F Spain Euroarea Source: National Statistics Institute (INE), OECD, Spanish Government The confidence of the investors in the Spanish economy is shown by the strong adjustments in the cost of the Spanish debt, with the gap with respect to German (10 year government bonds) at minimum historical figures: 103 bps in March 20 down from 475 bps in High unemployment rate, which registered a figure of 23.8% in March 20, continues to be the main concern about the Spanish economy. Nonetheless, the deep reforms undertaken with regards to labour market, the improvement in economic prospects and the fall in labour costs have had a positive impact on employment figures: the fall in unemployment with respect to the first quarter of 2014 is 8.24%. These positive trends are boosted by the reactivation in financial markets, to which the economy is responding with growth and employment. Evolution of Unemployment 25,9% 24,4% 23,8% 21,3% 20,1% 17,4% 9,6% 8,5% 12,1% 11,8% 11,0% 11,3% 10,0% 9,9% 8,9% 7,2% 7,1% 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 20Q1 2014Q1 20Q1 Spain Euroarea Source: National Statistics Institute (INE), Eurostat 2 Research & Forecast Report First Quarter 20 Spanish Office Market Colliers International

3 Madrid Rental Market CBD Prime City Decentralized Periphery CBD PRIME Stock: 4,789,500 m² Availability Rate: 7.6% Top Rents: /m²/month DECENTRALIZED Stock: 4,736,000 m² Availability Rate:.4% Top Rents: /m²/month CITY Stock: 4,045,000 m² Availability Rate: 6.5% Top Rents:.00 /m²/month PERIPHERY Stock: 1,460,000 m² Availability Rate: 24.2% Top Rents: /m²/month TOTAL MADRID Stock:,031,000 m² Availability Rate: 10.7% Top Rents: /m²/month 3 Research & Forecast Report First Quarter 20 Spanish Office Market Colliers International

4 Office take-up in Madrid amounted to 3,000m² during the first quarter of 20. The figured registered is 47.6% above the quarterly average since 2008, showing a consolidation in the strengthening of the demand noted in the previous quarters. This is particularly relevant due to the fact that between January and March we have not seen any deal closed on spaces larger than 20,000m², whilst other quarters with large take-up where clearly impacted by extraordinary large transactions such as Cepsa or Vodafone. The most relevant transaction is the deal closed by KPMG in Torre Cristal, in the CBD, amounting to nearly 20,000m². Office Take-up by Quarters Further to the rental increases registered last year in prime locations, in 20 we have seen prices rise in good quality buildings within M-30 ring-road (CBD and City areas). In addition, it must be highlighted that the incentives offered to tenants continue to reduce and we expect further upwards pressure on prime and consolidated areas in the next few months. Further to the rental increases registered last year in prime locations, in 20 we have seen prices rise in good quality buildings within M-30 ring-road Q1 Q2 Q3 Q4 Take-up in 000m² In addition, it must be highlighted that we have seen a number of deals closed above top rents, such as the 2,800m² taken by Caixabank in Paseo de la Castellana 7, which is particularly relevant due to the size of the transaction. Rental levels in decentralized and peripheral areas continue stable. Some upwards pressure on rents for grade A buildings is forecasted by the end of the year, whilst rents for obsolete buildings that do not respond to the demand s requirements are not expected to recover. Very few office completions have taken place in Madrid in the recent past and the trend is expected to continue in 20 and 2016, with the exceptions of a few pre-let projects and own use headquarters of banks. The lack of new speculative office space and a demand beginning to strengthen have led to a 12% reduction in availability rates with respect to the first quarter of 2014 and this trend is expected to continue. Office Availability by Areas Average Rents by Areas CBD Prime Ciudad Descent. Periferia Rents in /m²/month 7,6% 6,5%,4% 24,2% 10,7% CBD Prime City Decent. Periphery Total Madrid 4 Research & Forecast Report First Quarter 20 Spanish Office Market Colliers International

5 Barcelona Rental Market CBD Prime City Decentralized Periphery CBD PRIME Stock: 812,900 m² Availability Rate: 7.9% Top Rents: /m²/month DECENTRALIZED Stock: 1,143,000 m² Availability Rate: 20.2% Top Rents:.00 /m²/month CITY Stock: 2,366,800 m² Availability Rate: 8.2% Top Rents:.25 /m²/month PERIPHERY Stock: 1,202,900 m² Availability Rate: 21.6% Top Rents: 7.50 /m²/month TOTAL BARCELONA Stock: 5,525,600 m² Availability Rate:.6% Top Rents: /m²/month 5 Research & Forecast Report First Quarter 20 Spanish Office Market Colliers International

6 Office take-up in Barcelona between January and March was 70,600m²,.8% above the quarterly average since 2008 and 16.5% larger than the figure registered in the first quarter of These encouraging signs of demand strengthening, together with the stagnation of office development activity experienced in the past years, is having an effect now in Barcelona city market, where the scarcity in the supply of large spaces in quality buildings has already driven a change of cycle. It must be highlighted that, similarly to the trend noticed in Madrid, the rise in take-up figures is driven by an increase in the number rather than the size of transactions, being the 10,000m² taken by Desigual the most relevant deal of the quarter. Office Take-up by Quarters Q1 Q2 Q3 Q4 Take-up in 000m² Similarly to the trend noticed in Madrid, the rise in take-up figures is driven by an increase in the number rather than the size of transactions. In the recent past, the office stock in Barcelona has experienced a decrease due to the acquisition of various buildings for redevelopment projects involving a change of use. It is of particular interest the number of buildings that will be re-opened as hotels. This, combined with the lack of new projects completed and in the pipeline for 20 and 2016, the clear signs of demand recovery, the favourable economic prospects and the softening of the financial conditions, is expected to drive a rise in development activity to the medium term. Availability rates continue to experience moderated falls in almost all areas, with a total decrease in the amount of vacant space of 10.1% with respect to the first quarter of The reduction is larger in prime locations and modern, high quality buildings in new business areas, where the drop in total vacant space almost reached 30%. Office Availability by Areas 7,9% 6,4% 20,2% 21,6% 12,8% CBD Prime City Decent. Periphery Total Barcelona Prime rents in Avenida Diagonal and Paseo de Gracia have increased are currently stand at 18.00/m²/month. The moderated rise has extended to the rest of areas, which had remained stable in the past few months, particularly in high quality buildings. As a consequence of the imbalance between supply and demand landlords are taking strong positions in the market and we expect further rental increases and a clear reduction of incentives to tenants in 20. Average Rents by Areas Rents in /m²/month CBD Prime Ciudad Descent. Periferia 6 Research & Forecast Report First Quarter 20 Spanish Office Market Colliers International

7 Investment Market As Spain moves towards economic recovery with growth prospects in the region of 2.0% for 20 and 1.8% for 2016 (IMF) and after the price adjustments experienced in the past six years, Spanish office market is on the focus for most national and international investors. Total office investment volume in Madrid and Barcelona amounted to 409M in the first quarter of 20. The most active investors in Spain are Spanish property companies and developers and SOCIMIs (headquartered in Spain but investing capital mainly from abroad). In the past twelve months we have witnessed a more balanced situation with regards to the typology of the product demanded by investors. We continue to see great appetite for core investments in the CBD, nonetheless, a large part of the total investment volume in the last year, an particularly the last quarter, corresponds to acquisitions with some value add potential, such as vacant buildings for refurbishment or partially occupied assets located in peripheral areas. Office Investment Volume in Madrid and Barcelona Volume in M Madrid Barcelona The most relevant investment transaction between January and March was the acquisition by the Spanish property company Gmp of Castellana 77, a vacant office building within the CBD that will require major refurbishment. The purchase of BMW headquarters in Madrid by IBA Capital Partners and one building in WTC Almeda Park in Barcelona by the SOCIMI Merlin were also of note. As a result from the strong demand for investment product in Spain, we have seen prime yields tightening to levels below 5% in Madrid, although in Barcelona they remain stable in the region of 5.50%. 7 Research & Forecast Report First Quarter 20 Spanish Office Market Colliers International

8 502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia Pacific: 9 EMEA: 108 Primary Authors: Montse Conde Associate Director Montserrat.conde@colliers.com Isabel García-Loygorri Associate Director Isabel.garcia-loygorri@colliers.com 1.75 billion in annual revenue 160 million square metres under management Colliers International Spain Velázquez 94, 5º derecha 28006, Madrid Spain ,300 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with more than 16,300 professionals operating out of 502 offices in 67 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate occupiers, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. Colliers International has been recognized and ranked by the International Association of Outsourcing Professionals Global Outsourcing 100 for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 20 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.