Madrid's office investment market has seen an unbeatable start to 2012 following the 400 million sale of Torre Picasso, which represents 10% more than the total investment volume for 2011. Savills however suggests that this transaction will not set a precedent for the year ahead as despite a supply of stock not all properties are sellable. Constrained leasing demand, a lack of finance and caution from international investors will see domestic buyers account for the majority of activity in 2012 at lot sizes of 30-50 million, Savills says.
The international real estate advisor reports that Spain's obligation to the wider EU to commit to austerity measures including decreasing public spending and increasing taxes has caused further negative impact to the economy. The stagnation in growth affecting business confidence and the job market has directly impacted on the decline in Madrid's office market activity. Take up in 2011 was recorded at 340,000 m² - 23% less than in 2010 and only slightly above the record low for the decade. Savills predicts that similar levels will be recorded in 2012 as businesses continue to make cost savings, which will see stable demand remain for the sub 500 m² office space market.
Ana Zavala, head of office agency, says: "The decreasing levels of demand for office space in 2011 coincided with deteriorating economic sentiment. Only significant rental adjustments and incentives were involved in large scale lettings; we have seen 2012 begin stronger than the previous year."
According to Savills, Madrid CBD closing rents in Q411 stood at around 26/m²/month, representing a 2% fall compared to the previous quarter and a 5.5% decrease year on year. These price declines have largely been caused by an increasing gap between supply and demand, which has also seen an increase in vacancy rate causing new build projects to be delayed and future pipeline space dominated by refurbishment properties or those buildings that have been vacated.
Gema de la Fuente of Savills research says: "It is likely that growth in Spain will remain muted until 2013, and with foreign investment mainly focused on retail we expect the domestic buyers to dominate the office market this year. This confidence continues to see the office leasing market operate in slow motion and future supply levels remain uncertain as the viability of many projects is dependent on re-establishing credit flows."
Source: Savills
