Overseas interest in Madrid offices has boomed as foreign investment rose to 31% of transactions in 2010, up from 2% in 2009 according to a Savills report. The international real estate advisor cites SEB, W.P. Carey and Continental Property among the key international players that have helped to revitalize the market and notes a preference for sale and leaseback transactions with long leases, particularly by SEB and W.P. Carey.
Savills states that the buyer profile for large portfolios always corresponds to institutional funds, the most recent of these were carried out by Moor Park Capital Partners with Banco Sabadell, RREEF with the second round of BBVA properties and Drago Capital with Caja Madrid, achieving yields of between 6.5% and 7%. The report adds that small lots adapt well to the investment volumes and yields looked for by private investors, of between 4.5% and 6%. Overall the report records a 14% increase in investments transacted compared to 2009, totaling 700 million.
Luis Espadas, Head of Capital Markets at Savills Madrid, says: "The rising interest shown by foreign investors in Madrid is encouraging, although national investors continue to be active and dominate the market, both as buyers and sellers."
In terms of take up Savills reports that Madrid's office market reached 440,000 m² in 2010, up almost 40% on 2009. It also records an increase in larger leasing transactions, of over 1,000 m², which made up 25% of all transactions in 2010, an 8% rise compared with 2009. Savills believes this is because companies have chosen to take advantage of considerable vacant space at affordable rental prices.
Ana Zavala, Director of Savills Madrid Office Agency team, adds: "The 40% increase in overall take-up is an inspiring figure, without a doubt. Thanks to the delivery of a number of new and refurbished state-of-the-art properties in Madrid's central business district, the market is very competitive in terms of quality supply on offer at good prices. This should lead to a resurgence of interest in the central business district from large corporations in 2011."
Despite an apparent increase in the demand for office space the vacancy rate continues to rise, which Savills attributes to the fact that many companies which have decided to relocate their headquarters have taken less space in their new property. The report records approximately 1.5 million m² of vacant office space on the market, and 2010 closed with a vacancy rate of almost 12%.
However the research shows significant variations, with Madrid's Central Business District's (CBD) vacancy rate currently standing at 5% while other prime sub-markets outside of the M-30 range between 5% and 8% and some outer lying periphery areas of the city have a vacancy rate of 25%. This is reflected in rents which on the whole have been slowly falling.
Savills data shows that at the end of 2010, rents in the CBD were at between 27-28/m²/month, and the difference between this figure and the maximum rent achieved over the past decade is -35%.
Gema de la Fuente, Head of Research at Savills Spain, comments: "We are finally seeing a slowdown in the number of new projects being delivered as developers have become more cautious and the delivery of various buildings has been delayed. Excessive supply and a lack of demand continues to push rents downwards, although in the CBD and prime areas outside the M-30, the negative year-on-year change has decreased for the fifth consecutive quarter."