Savills - Office Market Report - Barcelona - Q3 2011
Barcelona office market Q3 2011Annual gross take-up Annual change in vacancy rateSource: Savills Research Source: Savills Research“Market trends continue to be determined by the turmoil affectingthe financial markets. This is shaping decision-making for bothoccupiers and investors who have adopted additional precautionarymeasures until the markets stabilise and a trend becomes moreevident.” Eusebi Carles (General Manager Barcelona) Office take-up has declined considerably this The complete absence of new projects being quarter (just over 43,000 sqm) compared to the delivered in the market is continuining to gradually figure for the same quarter in 2010 (60,700 sqm). help to stabilize office supply and to slow the Although demand in the third quarter of the year vacancy rate upward trend. is traditionally low, the overall trend in the market indicates that 2011 will register the lowest level of Rental values continue to fall, with prices dropping gross accumulated take-up of the decade. in almost all of the areas studied, albeit at a slower pace than in the previous quarter. On a Speculative developments have virtually quarterly basis, prime rents have declined by disappeared from the market. No projects were -2.6%. completed in the third quarter of the year and we do not expect any significant new projects to be There is a widespread caution among investors. delivered over the next 15 months. The volatility in the financial markets, the political climate in Europe, difficulties accessing finance and a lack of quality product at acceptable sale prices are hampering decision-making.
Economy, demand and supplyEconomy Hence, we estimate that gross take-up for the end of the year will not exceed 250,000 sqm (levels similar toThe spotlight with regards to the global economic those achieved in 2009 and almost 30% below theclimate remains firmly trained on the European average for the past 10 years).sovereign debt crisis. The pressure of financial marketson Italy has overshadowed the Greek Odyssey. The Compared to previous quarters, the Periphery hascost of Italian debt has reached record highs become particularly relevant during the summerdangerously above 7.0%, which was the point at which months. Three out of the nine most importantbailouts began in Ireland, Greece and Portugal. transactions were undertaken in Periphery areas: thePolitical issues in the country are making market multinational firm Adidas let over 1,400 sqm inuncertainty worse and this is affecting risk premium, Vallsolana Garden Business Park in Sant Cugat delwhich is currently around 550 base points (bps), whilst Vallès, the telecommunications company Colt Telecomthe Spanish premium is hovering dangerously close to expanded its offices in the WTC Almeda Park in500 bps. Cornellà de Llobregat (3,320 sqm) and the fashion brand Rosa Clará will move to a new 5,000 sqm building in Sant Just Desvern.Long-term government bond yields (10 years) Activity in the office market continues to be affected by firms’ cost savings strategies, either looking for lower rents or for more efficient buildings, which would allow them to significantly reduce costs. The latest strategic relocation completed in Barcelona has been Unilever moving from a prime CBD building to Viladecans; this has freed up space in l’Illa Diagonal, which is one of the most prestigious buildings in the city. This is a good current example of the psychological change in terms of demand for offices; the location of the property is no longer a key factor for many companies, which can forgo this in order to achieve other necessary objectives. Given this, vacant obsolete properties in the city centre have a clear objective: they must renovate their offices or they will not be able to survive in theSource: Eurostat & Bloomberg market.The extent in the situation of Europe is forcing us toimagine a situation where China would have to Supply and vacancy rateintervene, therefore becoming Europe’s banker and the Office supply in Barcelona remains unchanged in thepotential repercussions that this could have. third quarter of the year due to the complete absenceGDP growth in Spain is becoming increasingly weak of new developments in the market.and this could lead to stagnation or even a double-diprecession at the end of the year. The weakness of the Vacancy rate by sub-marketseconomy is clear when one looks at most supply anddemand economic indicators. However, the mostsignificative aspect of the economy is still the gloomyjob market situation - 144,700 people were maderedundant in the third quarter, putting theunemployment rate at 21.5%.Letting marketDemand & take-upOffice demand in Barcelona continues to suffer theconsequences of uncertainty in the market and theeconomic downturn. Take-up between July andSeptember slightly exceeded 43,000 sqm, which is19% lower quarter-on-quarter and up to 29% lower Source: Savills Researchyear-on-year. To date, gross accumulated take-up hasreached 174,700 sqm, which highlights the weak As we anticipated in our previous report, no significantperformance of the market, reaching minimum levels speculative projects will come onto the market withinachieved over the past decade. the next 15 months, although two office buildings are being refurbished in the city centre: the first is located Barcelona office market -Q3 2011 2
Rents & investment marketon Calle Calabria and is owned by Núñez y Navarro move to these premises due to the lack of adequateand the second is located on Travessera de Gràcia public transport infraestructure. As a result employeesand is owned by Colonial. are reluctant to move to these areas.The majority of developer activity within the next few Incentives (rent free periods, temporary rentalmonths will take place in the Nova Bocana complex, discounts and help with fit-out costs) are becomingwhere the company of the same name is developing important factors when negotiating contracts.three office buildings where the future headquarters ofDesigual and Fundació Pascual Maragall are expectedto be located. In total, both head offices amount to a Investment markettotal of 30,000 sqm. The sale of the Diputació 260 building by PontegadeaThe lack of new projects has become a stabilising to IVG in August has been the only significantfactor in the market and this is curbing the growth of transactions this quarter. This is certainly a very smallthe vacancy rate, which is currently at 13.3%. The volume in a market which was used to registering over0.1% quarter-on-quarter increase is essentially in ten transactions per quarter just four years ago.response to more second hand offices becoming Annualized investment volume has fallen to €224available. million, which highlights the extent of the decline in activity in the market, with volumes falling by aroundRents 90% compared to the market highs achieved in 2007.After a period of relative rental price stability in the finalmonths of 2009, rents have continued to trend Annual investment volumedownwards since the beginning of 2010. Rental levelshave fallen quarter-on-quarter in all areas analysed,however it is important to highlight that they have fallenmoderately if we compare the figures to those at thebeginning of the recession period (2008-2009).Accordingly the prime rent has fallen 2.6% to€18.50/sqm/month, which is similar figures in the 22@district, where rents have fallen by 2.8%.Quarterly prime rents Source: Savills Research The volatility in both financial markets and the political climate in Europe has caused investors with capital to set aside to invest in offices to err on the side of caution and they are analysing the situation further. If we add this to the fact that there is not much quality product in the market at sale prices reflecting these levels of uncertainty, the combination of these two factors has severely affected the flow of investment.Source: Savills ResearchRental levels in the City Centre and the Periphery havebeen more flexible, with a 4.4% and 4.3% fallrespectively. Owners with properties in these areasstudy the possibility to renew their rental strategies, butfor different reasons. In many cases, properties locatedin the city centre are gradually losing theircompetitiveness due to their obsolescence comparedto a vast stock of new and more efficient buildingslocated in the New Business Areas and the Periphery.However, on the other hand, when faced with theconsiderable number of modern offices in thePeriphery, it is more complicated for firms to decide to Barcelona office market -Q3 2011 3
Barcelona office marketSurvey mapFor further information, please contact:Eusebi Carles Frédéric Stravraky Josep Garcia Andrew Stevens Muna Benthami Eri MitsostergiouDirector Barcelona Office Agency Corporate Valuations Research Barcelona Research Europe+34 93 272 4100 +34 93 272 4100 +34 93 272 4100 +34 93 272 4100 +34 93 272 4100 +31 (0)20 301 email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.org email@example.com firstname.lastname@example.orgSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritagewith unrivalled growth. It is a company that leads rather than follows, and now has over 180 offices and associates throughout the Americas, Europe,Asia Pacific, Africa and the Middle East. A unique combination of sector knowledge and entrepreneurial flair give clients access to real estateexpertise of the highest calibre. We are regarded as an innovative-thinking organisation backed up with excellent negotiating skills. Savills choosesto focus on a defined set of clients, therefore offering a premium service to organisations with whom we share a common goal. Savills takes a long-term view to real estate and works hard to invest in long term and strategic relationships and is synonymous with a high quality service offering anda premium brand.This bulletin is for general informative purposes only. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoeverfor any direct or consequential loss arising from its use. The bulletin is strictly copyright and reproduction of the whole or part of it in any form isprohibited without written permission from Savills Research. (c) Savills Ltd November 2011