According to Savills latest office report, whilst domestic investors continue to dominate the market in Madrid, German institutional funds have returned to the sector joining the new buyers in this area including South American, British and Canadian parties. The report states that the Madrid office market is ‘beginning to awaken from its slumber’ as it regains activity with Q2 volumes recorded at €155 million, far exceeding the €45 million recorded over the same time period last year. Half year figures have also increased four fold compared to H112 at just over €200 million.
The international real estate advisor reports although 59% of deals in H113 relate to Spanish investors this is in fact the lowest volume over the past five years. Deka completed a deal for an office building on the outskirts of Barcelona’s CBD, and Union Investment acquired Hotel Raval, Savills suggests these deals indicate Germans are back in the market. Of the newer entrants, Savills sees the South American investors as most noteworthy due to the cultural similarities. Achievable yields currently stand at 6% but for trophy assets Savills suggests this figure could be lower.
Pablo Pavia, director of investment at Savills, says: “German institutional funds have returned to the commercial property investment market. Deka purchased an office building in Barcelona’s CBD, and Union investment a hotel, also in Barcelona. Their arrival in the Madrid office market is just a matter of time.”
In terms of the leasing market, take up figures have been excellent in H113, following the completion of several megadeals being signed in Q1. However Savills says this is not reflective of the current market conditions, with vacancy rates continuing to grow on second hand space reaching 14% and the number of deals signed dropping by 27% year-on-year and 12% quarter-on-quarter.
At the end of June, there was around 1.8 million m² of vacant space in the Madrid office market, which is a 2% increase quarter-on-quarter. These declines are reflected in rental prices which continue to decrease with the exception of some consolidated areas which are showing signs of stabilising. Achievable rents in the CBD remain at €24.50 per m²/month with minimum rents registered at €4 and €5 per m²/month in an office building on an industrial estate.
Gema de la Fuente of Savills research adds: “Rents in the CBD are reaching their lowest level seen in the recession and if history repeats itself, as it did I the mid-90s, rents may well climb slightly at the end of 2013 and 2014.”
The data shows the total volume of new or refurbished space in the pipeline for 2013 will barely hit 90,000 sq m, which is the lowest seen over the past 10 years. Savills report highlights that fewer risky new build projects are being developed and that most speculative projects are primarily refurbished.