Oficinas Madrid 2010


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The take-up levels for the office sector during Q1 of 2010 were in line with

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Oficinas Madrid 2010

  1. 1. APRIL 2010 SUMMARY TRENDS The take-up levels for the office sector during Q1 of 2010 were in line with Letting Market expectations. With almost 100,000 sqm of office take-up, this figure doubles that Supply registered in the same period of 2009, although the overall volume is relatively New Construction modest. Vacancy rates continue to rise, now reaching 10.2% whilst rental levels continue to readjust to market, especially in the City Centre, where prime rents Take-Up stand at approximately 29€/sqm/month (about 45% less that two years ago and 7% below last year). Rents TRENDS The investment market is currently at a standstill, due to a combination of factors of which a lack of prime product certainly stands out. Prime yields, approximately Investment Market 6%, are being forced down, something that, at first glance, could be surprising given Supply the current fall in rental levels. This is due to the fact that the high levels of demand for prime product are preventing a fall in prices. Demand Prime Yields ECONOMIC ENVIRONMENT ECONOMIC INDICATORS Macroeconomic data for Spain is still not very clear: on the one hand, there is an (ANNUAL % CHANGE) increase in the creation of new companies although coupled with company closures. Residential property purchases have increased but private consumption continues 2007 2008 2009 2010* to be at a standstill, and family savings have reached historic highs. The most representative indicators of the services sector are no longer in the recovery phase GDP Growth 3,7 0,9 -3,6 -0,4 as per the last few months of 2009 and industrial production results for January and Household 3,5 0,1 -4,7 -0,6 February are not as good as expected. However, electricity consumption, an early Spending indicator of industrial activity levels, increased during Q1 of 2010. Unemployment 8,6 13,9 18,7 19,8 Rate * Economist Intelligence Unit estimates – March 2010 Although it is evident that the recovery from the current crisis will be slow, the tendencies nevertheless point to an improvement. There is a risk that the recovery will come about without a corresponding significant reduction in the high levels of ACTIVITY INDICATORS unemployment, currently 18.7% of the currently active population. SERVICES SECTOR 10 OFFICE MAP OF MADRID 5 0 -5 % -10 -15 -20 -25 Dec-09 ene-08 abr-08 jul-08 oct-08 ene-09 abr-09 jul-09 oct-09 ene-10 Source: INE – Last updated March 2010 318,000 CBD - Business District The turnover in the services sector fell by -4.1% in January 2010 when compared to January of 2009 and is more than sqm two points below the level registered in December. The Rest of City number of jobs also fell in January by -3.4% in relation to the same month the previous year. M-30 The annual percentage change in the Commerce sector stands at -3.7% whilst for Other Services this figure stands at -5.1%. M-40 Madrid Professional, Technical and Scientific Activities suffered a more severe drop of -6.8%, followed by Administrative Activities and M-40 Rest Auxiliary Services (-6%), Information and Communication Services (-5.6%), Catering (-4.5%), Transport and Storage (-3.5%). MADRID OFFICES APRIL 2010 1
  2. 2. SUPPLY 11,00 GRAPH 1 – GLOBAL VACANCY RATE EVOLUTION 10,00 Supply in the Madrid office market has continued to increase 9,00 during yet another quarter. 8,00 7,00 6,00 Vacancy rates are already in double figures, given that the 9.6% % 5,00 rate registered at the beginning of 2010 now stands at 10.2%, far 4,00 from the 7.7% registered in April 2009. This means that almost 3,00 2,00 1,150,000 sqm in exclusive use office buildings are currently 1,00 vacant, to which must be added a further 175,000 sqm in high- 0,00 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010- tech developments. Thus, the Madrid office market reaches the Abril highest vacancy rates registered over the last 15 years. Source: Cushman & Wakefield During Q1, only 63,570 sqm were added to the office stock, of which approximately 56,000 sqm correspond to Torre Caja The available supply at the beginning of April when compared to Madrid, which forms part of the Cuatro Torres Business Area on the previous year shows that, in percentage terms, the M-30 area the Paseo de la Castellana. This building is not available on the has seen its supply increase by more that 50%. It is interesting to market as Caja Madrid will be its future occupier. As a result, the note however, that the rest of the submarkets have experienced amount of speculative office space completed during Q1 is below supply increases more or less in line with each other, about 36%. 8,000 sqm. This demonstrates that the main reason for the Currently, the City Centre accumulates 41% of total available increase in supply levels over the last few months stems from the supply, whereas the M-30 has 17% and the M-40 Madrid has return of second hand space coming to market as a direct result 11.5%. The remaining 30.5% is located on the outskirts and M-40 of numerous companies restructuring their activities. Remainder submarkets. The number of office developments has continued to fall over Historically, during the stagnant office cycles in Madrid, there are these last quarters given that very few developers can source the a number of locations on the periphery that are especially necessary finance to undertake new projects. Amongst the most affected by this situation: such as Tres Cantos, San Sebastián de important developments coming to market over the next few los Reyes, Rivas, San Fernando de Henares, the area around the months are the Via Norte Business Park comprising 37,000 sqm airport and the A-6 motorway, with the exceptions of the of offices, and Phase 2 of the Adequa Business Park with close to business parks located in Pozuelo and Las Rozas. This current 28,000 sqm, both located on the A-1 motorway junction at Las cycle is proving to be no exception. Tablas. It is interesting to note that 4,500 sqm have already been leased in Via Norte. The forecasts set out in our previous report still stand true, in which we estimated that the market would reach its maximum The amount of office space under construction or full point in terms of vacancy levels during the summer-autumn of refurbishment is at minimum levels reaching only 235,000 sqm of 2010, based on the number of developments nearing completion which 81,000 sqm have already been reserved. The figures for this year. We expect the return of second hand space coming corresponding to 2011 and 2012 are also at low ebb, although to market to diminish significantly towards the end of 2010. well-located second hand space is expected to come to market due to the reorganisation of companies such as Caja Madrid or Repsol YPF. GRAPH 2 – VACANCY RATE (APRIL/YEAR) 20 18 16 13,2 13,7 14 11,3 12 10,7 9,8 10 8,3 8,5 8 8 6,4 6 6 4,6 4 2,9 2 0 Centro Ciudad M-30 M-40 Madrid M-40 Resto 2008 2009 2010 Images of the office buildings belonging to Grupo Ortiz en the PAU Vallecas, currently under construction Source: Cushman & Wakefield 2
  3. 3. MADRID OFFICES APRIL 2010 DEMAND GRAPH 4 – TAKE UP BY SUBMARKET (1st Q 2010) Office take-up in Madrid reached 98,000 sq.m during the first 45.000 quarter of 2010. Although this figure is quite low, it is nevertheless a significant improvement over the same period the previous year having only reached 54,000 sqm, and this current figure is more in line with the 120,000 sqm take-up during the 30.000 first three quarters of 2008. This figure is also lower than the Area m² 147,000 sqm registered during Q4 of 2009. 15.000 Only two transactions of over 5,000 sqm have taken place, seven transactions of between 3,000 sqm and 5,000 sqm and thirteen between 1,000 sqm and 3,000 sqm. This means that a considerable number of medium size requirements are coming to 0 fruition, which is no doubt a very positive sign. On the other City Centre M-30 M-40 Madrid M-40 Rest High-tech Source: Cushman & Wakefield hand, no transaction has come to fruition involving more than 10,000 sqm. Streamlining of space is, in itself, a factor that companies are more conscious about and in this regard new, modern and However, we are of the opinion that it is important to be efficient design developments are the ideal option contributing to cautious in terms of the coming months, given that a number of a reduction in costs. As an example, of the transactions the larger deals finalised during this quarter actually stem from comprising over 3,000 sqm over the last quarter, eight of them last year. The majority of companies are still acting cautiously and refer to Class A buildings. Six of these comprise new are reluctant to face costs that are not absolutely essential. developments and the other two refer to second hand buildings of recent construction. The fall in rents in all submarkets, especially in City Centre, has ironed out the differences between them that existed a couple of In terms of submarkets, the take up during Q1 in the M-30 years ago. This means that rents, on their own, have lost submarket, close to 40,000 sqm, exceeds even the City Centre prominence as a driving force for change, as it is important to market. The take up during Q1 in the M-30 submarket has bear in mind that many property owners have had to be flexible already surpassed the total amount for 2009 in this area. with their exiting tenants in this regard, reducing the possibility of new transactions taking place. To this must be added the costs The largest transaction registered to date during 2010 in moving, setting up, client communication…. extra costs that corresponds to the leasing of approximately 7,700 sqm by companies take into account more than ever. Mahou in the Mendez Álvaro area. This is followed by the 6,600 sqm that the construction company OHL will occupy on Calle On the other hand, not all involve a reduction in space Arturo Soria 343, once the refurbishment works have been occupation. There are still companies that take advantage of the completed. In third place the publicity company VivaKi has current situation and increase the amount of space they occupy leased just over 4,500 sqm in the Vía Norte complex located in within the same building in which they are located, and also Las Tablas, and will occupy the premises towards the end of the renegotiate certain terms in their previous leases. next quarter. GRAPH 3 - ANNUAL OFFICE TAKE UP 1.000.000 900.000 800.000 700.000 600.000 m² 500.000 400.000 300.000 200.000 100.000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Cushman & Wakefield Q1 Take-up Office buildings on calle Titán – Méndez Álvaro 3
  4. 4. MADRID OFFICES APRIL 2010 RENTS INVESTMENT MARKET Rents continue to readjust, albeit at a slower rate than previous This year has started as sluggishly as the end of 2009 but with a months. In reality the biggest readjustments are being lower level of investment volume. Only one transaction came to experienced in the City Centre market. Prime rents for the best fruition in Madrid’s investment market during the first three buildings located on Castellana stand at approximately months of this year. The volume of the transaction came to 18.4 29€/sqm/month, although the average rental level for the area Million Euros whereas the investment volume over the same stands at 26.50€/sqm/month. period the previous year stood at 160 Million Euros. The rents corresponding to developments located on the Investors are keeping a watchful eye on the evolution of the outskirts and periphery have already undergone severe market and are monitoring the main indicators. They are awaiting readjustments and in theory, those buildings of inferior quality a complete and full readjustment of rental levels and are on the will be recording lower rents than during the previous quarter. alert for signs of any recovery in the market. This is theoretical because in some locations several months can go by without any transactions being recorded. It is perceived Demand continues to be concentrated mainly on prime product, that the lack of transactions is not due to price, i.e. demand levels although there is no prime product currently available, making will not bounce back just because of a dramatic fall in rental investors search for alternatives in the secondary markets. Quality levels. supply is still scarce as the main creditors of the developers in difficulties, the banks, are reluctant to sell especially if the Due to the fact that the fundamental key at this moment in time properties are generating income. The property crisis has meant is the tenant, the rental levels that appear in our schedule are that prices have adjusted to reasonable levels although not at the more tentative than ever, given that deals can be struck on discount prices that investors, especially foreign ones, were Castellana at both above 29€ and also below 26.50€. All depends expecting to see at the beginning of the downturn. As a result, on the occupier, the property owner and the terms of the lease, buyers are now aware that prices levels are not going to fall much and thus nominal rents are often far removed from real rents more. (taking into account rent-free periods, stepped rents, etc...). The debt markets continue to be practically at a standstill, RENTAL LEVELS WITHIN THE M-40 although there are funds, especially foreign ones, readily able to invest. On the other hand, Spanish family office continue to be Submarket Max (€/sqm/month) Min (€/sqm/month) very active and interested in the office sector, and it is expected that significant transactions will take place throughout the year CBD Prime 29 24 despite the anodyne start of 2010. City 1 25,5 18 City 2 20 14 Prime yields continue to stand at between 6% and 7% and on the outskirts yields stand at about 7.25%. The short to medium term North 19 15,5 trend is that of stability or a slight drop of about 0.25 basis points. M-30 18.5 15 GRAPH 5 – EVOLUTION OF YIELDS (GROSS) RENTAL LEVELS OUTSIDE THE M-40 7,50 Submarket Max (€/sqm/month) Min (€/sqm/month) 7,00 6,50 Campo de las Naciones 19 15 6,00 La Moraleja 17 15.5 5,50 Arroyo de la Vega 15 12 % 5,00 4,50 M-40 A-6 16 10.5 4,00 M-40 Other 11 7,5 3,50 3,00 2,50 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010-1Tr For further information please contact: Prime 5,75 5,25 5,5 6 6 6 5,75 4,5 3,75 4,5 6 6 6 Research Department: Periferia 6,5 6,25 6,5 6,75 7 6,75 6,5 5,75 5,5 5,5 6,75 7 7 Dolores Martínez – dolores.martinez@eur.cushwake.com Source: Cushman & Wakefield Cushman & Wakefield This document contains information of a general nature that has been used by Cushman & Wakefield presupposing it to José Ortega y Gasset, 29 - Planta 6ª be correct and accurate. Cushman & Wakefield accepts no responsibility should this not be the case. No implicit or 28006 Madrid explicit guarantees are given in relation to the accurateness of the information contained in this document, that may be Tel.: +34 91 781 00 10 subject to errors, omissions, changes in sale or rental prices as well as the withdrawal of information without prior Fax: +34 91 781 80 50 warning or by client instructions. If you wish to access the most up to date and leading information in the sector, please visit Cushman & Wakefield’s Passeig de Gràcia, 56 - Planta 7ª Knowledge Centre: cushmanwakefield.com/knowledge 08007 Barcelona © 2010 Cushman & Wakefield. All rights reserved. Tel.: +34 934 881 881 Fax: +34 932 152 950 www.cushmanwakefield.es