JLL: Only 11.5% Of Madrid’s Office Space Is High Quality

4 August 2016 – Mis Oficinas

Of the more than 18 million sqm of office space in Madrid, only 11.5% comprise high quality buildings, known as Grade A properties. And that percentage decreases even further if we narrow our focus to the stock of offices that are currently vacant, where such buildings account for just 8% of the total, according to a report compiled by JLL.

Specifically, in Madrid the report identified 139 Grade A properties, with a total surface area of 2.1 million sqm, which means that the percentage of high quality offices is significantly lower than in other cities such as, for example, Central London, where it is estimated that the ratio of Grade A buildings over the total stock ranges between 15% and 20%, and Paris, where it amounts to 16%.

To conduct its study, JLL defined three categories to take into consideration when classifying Grade A buildings: physical characteristics (height, surface area per floor, flexibility of the space, etc); technical features (air-conditioning/heating, security, energy supply and the management of the property); and services, as in those offered to the occupants of the building.

These properties are spread very unevenly across Madrid (CBD, Secondary, Periphery and Satellite). In this sense, more than 70% of the Grade A stock is concentrated in peripheral areas (in the Periphery and Satellite areas) and just 21.7% is located in the financial district (CBD), 457,310 sqm in total. On the other hand, if we consider the percentage of high quality office space over the total stock, in the CBD only 10.5% of buildings are categorised as Grade A, whilst in the Periphery area, more than 30% fulfil the criteria.

In terms of rental prices, JLL has identified three factors that determine the highest rents in the market: quality, location and public transport links. The combination of those aspects determines the final price. Thus, in the same sub-market, the difference between the rental price of a Grade A building and another property that does not fulfil those criteria could amount to 30%; in the same way, buildings with the same characteristics but with different locations may also have differences in rent of around 30%.

The level of penetration of Grade A buildings in the rental market is significantly higher than its weight as a percentage of stock and the trend is growing. Thus, in 2015, Grade A buildings accounted for 35% of the total rented surface area, up by 10% compared with 2014.

The ratio is even higher for transactions involving large spaces. In this sense, in rental operations for spaces measuring than 2,000 sqm, 48% of the space leased involved Grade A properties.

This data shows the (high level of) interest from companies in renting Grade A properties, as they are increasingly aware of the impact of the quality of their offices on their results and the productivity of their employees. Nevertheless, given the current levels of new leases and the scarce availability of space, the supply covers just over 12 months of demand. And that problem is not going to be solved through the construction of new properties, as they are insufficient to meet current demand. In fact, according to JLL’s report, 27% of the future space planned for the next three years, both refurbished and newly built, has already been leased or designated for own use.

Original story: Mis Oficinas

Translation: Carmel Drake