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Office Market Well on the Way to Tripling 2013 Figures

9/10/2014 – El Confidencial, Expansion

Year-to-date, around €2.4 billion have been invested in the office markets of Spain’s biggest cities: Madrid and Barcelona. It implies that during the summer months only, the same amount (€1.2 billion) was spent as in the first half of the year. If the pattern keeps up the pace, at the end of the year we may see the investment volume tripling the 2013 score.

This and the following data proceeds from the latest report on the third quarter of 2014 by CBRE. According to it, from January to October, gross area of absorbed office spaces (subjects to contracts) totalled at 232.000 square meters in Madrid and 137.000 sq m in Barcelona. The numbers indicate that in the capital 7% of the space was absorbed, while in Barcelona 8%, both on year-on-year basis.

Apart from the statistics, many interest and demand notifications are arriving from the sector, including enquiries about non-downtown areas of the cities. However, in opinion of Patricio Palomar, Market Analysis director for CBRE, ‘over 50% of all operations are carried out in the metropolitan (and business) centers with contracts ranging from 2.500 to 5.0000 square meters of even more than 7.000 square meters like in case of the 280 Castellana street office rental agreement signed by Grupo Sigla’.

‘Potential tenants know that prices in the prime areas in Madrid and availability of first-class buildings of more than 5.000 square meters is gradually shrinking. Therefore, the market requires more quality products, provided, for example, by means of refurbishment of poorly maintained existing spaces in magnificent locations’, says Iñigo Enrich, the Office Agency director.

His collegue Office Agency head in Barcelona Eva Jodar describes the situation on that market as follows: ‘unfortunately, stock represents clear obsolescence and finding a quality product demanded by huge international companies becomes a tough task. Prompt availability hits high but there is little of the quality one. Excellent location, easy and comfortable access to public transport, representative property, efficient use of space and sustainable commitment are requirements which are almost impossible to meet nowadays. The only hope rests in rehabilitation works, like the one initiated by Colonial in its Travessera building’.

The Market is Highly Polarized

In terms of availability, it gradually declines in both cities. Although the contracts signing mostly aims at moving to a more attractive place, also newly established and growing firms call for some quality office space. Moreover, in Barcelona several buildings’ use has been changed from office to hotel space.

As per CBRE’s data, Barcelona’s vacancy rate went down from 15.58% to 14.90% and all sub-markets in the Catalonian capital witnessed falls in their prompt availability. However, while in the city center the rate shows 10%, more peripheral and new business areas post 22%.

When it comes to the rental costs, prime zones of Barcelona ask for 17.75 euros per square meter monthly and the price has not changed over the last four months. Whereas in Madrid, values went slightly up to 24.75 €/sq m/month and the odds are high that at the end of the year the amount will rise to 25 €/sq m/month. Moreover, in the third quarter of the ongoing year, several transactions invloved values of more than 28 €/sq m/month in Madrid and of around 20 €/sq m/month in Barcelona.

New Cycle Provokes Euphoria on the Market

This summer has been truly busy in terms of investment. In fact, both Madrid and Barcelona will remember the year 2014 as an exceptional one as Socimis (Spanish Reits), purely Spanish investment vehicles held in 85% by big-name international investors like George Soros, John Paulson, Bill Gross or Richard Perry, took up the baton. The Socimis account for €1.9 billion of the total €2.4 billion spent year-to-date.

Furthermore, with the time passing, direct or indirect bet on Spain by Asian investors becomes more and more visible. Thus, Chinese group Dalian Wanda which acquired the Edificio España building for €265 million earlier this year with view to converting it into a hotel, now ponders introduction of new projects. Furthermore, GIC (the Singapore Sovereign Wealth Fund) has bought a stake in Spanish GMP. This operation gives a new meaning to the recovery of the country as the vulture funds start to give way to the core funds.

Nowadays, not only assets are being purchased but also entire portfolios. For instance, the transactions closed by Blackstone and Socimi Axia that sealed a bulk deal on Wereldhave office buildings.

 

Original article: El Confidencial (by E. C.), Expansión (by R. Ruiz)

Translation: AURA REE