The Madrid office vacancy rate has eased in the second quarter of 2011, standing at 4.73% in the city’s Central Business District (CBD), down from 5.31% in Q111, according to international real estate advisor Savills.
The Madrid office vacancy rate has eased in the second quarter of 2011, standing at 4.73% in the city’s Central Business District (CBD), down from 5.31% in Q111, according to international real estate advisor Savills.
The firm states that this is an encouraging sign for Madrid’s office market, however it is important to note that occupier take-up is not the main reason for the decrease but a lack of new stock coming to the market. Take-up levels for Madrid reached approximately 90,000 sq m (968,751 sq ft) in Q2 2011, down from 160,000 sq m (1.7m sq ft) in Q2 2010.
As a result of the continued stagnation in Madrid's development pipeline, which saw just over 26,000 sq m (279,861 sq ft) of new space completed in Q2 11, landlords have increasingly looked to refurbish their existing properties in order to make them more competitive and efficient. In fact, Savills expects that almost 20% of the total new supply in 2011 will be refurbished space, compared with 9% in 2010, and predicts this stock could account for more than a third of new supply in 2012. Prime examples of markets that have already witnessed an increase in refurbished properties are on Calle Alcalá and the Castellana area where several properties are due to come back to the market having undergone technical and technological improvements that are currently demanded by the market. In some cases owners are making the most of lease expiries to completely refurbish their facilities, which is the case at Mutua Madrileña's property at Paseo de la Castellana 50.
Ana Zavala, Head of Office Agency Savills Madrid, says: "The lack of good office stock in the Madrid market has prompted a response from landlords to refurbish their existing stock, which is a promising sign. However, we need a greater level of refurbishments in the city's urban centre as whilst we are still seeing prudence and caution from occupiers generated by a lack of confidence in Spain's economic outlook, there are several large space requirements circulating that will be a good boost the market. In addition, we are expecting to see some growth in the Spanish economy at the end of 2011 and beginning of 2012, which will also help to ease confidence concerns."
In terms of office rents, Savills research shows that overall rental decreases continue to slow with average CBD rents at €27/sq m/month but varying widely outside central Madrid where 70% of available supply is located. In the urban area submarket rents range between €11/sq m/month and €26/sq m/month, closely linked to occupier interest.
When assessing Madrid's investment market, Savills confirms that volumes for Q211 totalled slightly over €40m bringing the H111 transaction levels to just under €150m, compared with €475m in H1 2010. Savills expects the year end investment figure for 2011 to reach close to €700m, a similar level to 2010.
Gema de la Fuente, Director of Savills Madrid Research team, says: "There are several prestigious, quality office properties coming up for sale which will be a breath of fresh air for the market, such as the Alfredo Mahou Tower in AZCA or one of the KIO towers. Due to a lack of transactions in the market yields have remained stable both in the CBD and Madrid's submarkets this quarter."
According to Savills data yields remain at the same levels seen in Q111 of 5% and 5.25% in Madrid’s CBD, or slightly lower for some prime properties. In comparison initial yields for consolidated areas in the periphery have remained between 6.5% and 6.75%.