Prelets spark optimism in Madrid's office market (ES)

Madrid's office market has seen the return of prelets including a 15,000 m² deal signed by AENA (Spanish Airport and Air Travel) at the beginning of Q210, in addition to over four deals signed in the northern zone in the last quarter. This is according to Savills.

The international real estate advisor reports that signs of prelets have sparked optimism in the market which has seen gross take up at nearly 100,000 m² in Q110, 54% higher than Q109. Furthermore the average size of units leased has increased to 977 m² from 677 m² in Q109. Despite these positive signs, over 260,000 m² of speculative new build space is anticipated before year end 2010, and this large pipeline is set to cause vacancy rates to continue to rise.

Savills states that total office stock is 12.57 million m², of which 1.44 million m² is vacant, resulting in the highest vacancy rate this decade of 11.5%. Although decreases in prime rents have slowed over the past months (Q409 to Q110 saw 2% decline) and in some buildings rents have stabilised, Savills anticipates that across the entire market average rents could continue to fall. This downward trend in rental values has been recorded for seven consecutive quarters, and whilst less dramatic in CBD is causing average capital values to decline. Although there is evidence of yield compression the shift to 5.75% in the CBD has not triggered a rise in capital values due to continued falls in rental values.

Luis Espadas, Capital Markets Director, says: "The investment market is currently on tenterhooks. Pressure to invest in both national and international prime office buildings (in the CBD or consolidated periphery) continues to increase, but there is no corresponding yield shift to fulfil potential seller's price expectations. The key question is: who will be first to give in and start doing deals? It seems that demand will force investors' hands."

Investment reached a total of just €45 million with only three deals signed in Q110. This takes the average volume back to 2008 levels, when the market first started to fall. National investors continued to represent both buyers and sellers in deals that took place outside CBD. Savills says that international funds continue to pay a close interest in the market but a lack of supply and an aggressive approach from nationals, when CBD product is available, has led to no deals involving international parties over the past quarter.

Source: Savills

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