Research Spain Q1 2021 SPOTLIGHT Madrid O ces ... - Savills
6
Madrid Offices Research Spain – Q1 2021 SPOTLIGHT Savills Research
Transcript of Research Spain Q1 2021 SPOTLIGHT Madrid O ces ... - Savills
Madrid Offices
Research Spain – Q1 2021
SPOTLIGHT
Savills Research
Spotlight Madrid Offices Q1 2021
2savills-aguirrenewman.es/research
Economic OverviewThe development of the country’s economy will greatly depend on the progression of the health crisis and restrictions. The third and fourth waves will have a direct impact on economic growth in Q1, which is expected to remain negative. According to Focus Economics’ forecast for April, Q1 2021 was projected to close at -4.1%, but this represents an increase of almost five percentage points compared to the annual growth registered in Q4 2020. The national economy should pick up from Q2 onwards, albeit more slowly than last year’s predictions. The pace of the vaccination rollout and the arrival of European aid will be key factors for the start of the recovery.
The latest published data on the labour market (number of unemployed registered in the SEPE offices in March) reflected some relief thanks to the Easter period. Despite restrictions and mobility limitations, unemployment fell by just over 59,000 people. This is the largest decline since July 2020 and, although the number of unemployed dropped below the psychological barrier of four million, it is still 401,000 more than those registered a year ago.
With regards to the unemployment rate, Focus Economics’ forecasts show a slight increase in Q1 2021, with a continuous gradual decline starting in Q2 2021.
Take-up and DemandAfter a difficult year for the market due to the consequences of the health crisis, the first quarter of 2021 ended with a take-up volume of 84,000 sq m, very similar to Q4 2020 (only 1,500 sq m less). This figure represents a drop of -23% y-o-y. However, if we do not take into account the two largest transactions in Q1 2020, which amounted to 19,000 sq m, the percentage drops to -6.5%.
On the demand side, the 95 agreements represent a -6.7% y-o-y decrease in the number of deals. However, this is the best figure in the last three quarters, with the number of deals up almost 24% compared with Q4 2020. When comparing it with Q3 and Q2 of last year, the increase is even greater at 70% and 35%, respectively. It should be taken into account that this is the first quarter fully affected by the pandemic, as last year the effects were not felt until mid-March, so it will be necessary to wait for the second quarter to measure the actual y-o-y evolution and full impact of the health crisis on market activity.
The average deal size, which stood at almost 890 sq m, is another indicator that ref lected negative data, both year-on-year (-17.9%) and quarter-on-quarter (-20.6%), respectively. .
Deal SizeOne of the main highlights at the start of 2021 was the notable increase in deals of <500 sq m, which could explain the decrease in the average deal size. 56.5% of agreements fall within this bracket. This high level has not been seen in the market since the end of 2016, and accounts for four percentage points above the average since 2000 (52.4%).
Deals of between 500 sq m and 1,000 sq m suffered the greatest reduction, accounting for 19.6% of the agreements closed in Q1 2021. This represents a drop of 15 points compared to the same period in 2020 (accounting for 35% of demand). The percentage of lettings of large spaces (>1,000 sq m) also declined, although to a lesser extent, from 28.8% at the end of 2020 to 23.9% in this quarter. On the positive side, the percentage of large spaces being let above 5,000 sq m remained stable compared to the historical average. Looking at the distribution of deals in relation to the M-30 by size, there was a similar distribution of agreements of >1,000 sq m - 46% inside and 54% outside - when it is precisely within the central hub that 64% of spaces below 500 sq m were closed. This can be explained by the vacancy figures at the end of 2020: almost half of the buildings with vacant space within the ring road offered more than 1,000 sq m of available space.
In Q1 2021, the increase in demand within the M-30, led by small and medium-sized companies, has contributed to the 84,000 sq m of
gross take-up in Madrid
Madrid Offices
Annual Take-up
Source Savills Aguirre Newman
0
50
100
150
200
250
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
sqm
Q1 Q2 Q3 Q4 No. Deals Q1 (right axis)
de tamaño medio de las operaciones <10.000 m² registradas hasta septiembre (+11% respecto al nivel de 2018)
Spotlight Madrid Offices Q1 2021
3
quarter, the sector that has grown the most in the past year. This is especially prominent considering that its average presence is 3.4%. The interest in a good location in the city centre, and the need for medium-sized spaces, resulted in most of the take-up in the Urban Area (62% of energy transactions).
The boom in online consumption caused by the health crisis last year, and its unstoppable evolution, led to an increase in the workforce of the main distribution companies. One of them, Just Eat, made the largest transaction in the M-30, taking up more than 7,000 sq m of newly refurbished space on Méndez Álvaro.
Current SupplyThe volume of supply grew in Madrid for the fifth consecutive quarter. At the end of Q1, Madrid had 1.26 million square metres with immediate availability, representing 9.54% of the total stock (13.9 million square metres). The vacancy rate rose compared to the previous quarter by just over two tenths of a percentage point. The increase in supply was due both to the reincorporation of second-hand space and to the new surface area added to the market. The latter accounted for around 25,000 sq m from new developments (such as the Polaris North building in Manoteras) and comprehensive refurbishment projects (such as the building located on Paseo de la Castellana 40bis).
In this regard, some occupiers took advantage of the end of the contract or the option to terminate the contract prematurely to reduce or free up unused space during the past year in order to minimise costs. The M-30 border maintains the difference between the peripheral markets (with an average availability of around 12%) and the inner city (6%).
Future SupplyBetween April and December 2021, almost 241,000 sq m is expected to be delivered across 23 new development (five) and refurbishment projects (18), of which only 165,000 sq m will be incorporated into the market as supply, as the remaining 32% is committed to pre-let contracts. By volume, the nearly 13,000 sq m occupied by two tenants on Nuevo Castellana 85 stand out. According to the current forecast, in 2022 the volume of new space will be close to 200,000 sq m distributed across 17 assets, eight new developments and nine refurbishments. Vacant space amounts to 118,000 sq m, as 80,000 sq m will be occupied. The new corporate headquarters of Catalana Occidente (on Méndez Álvaro) and Acciona (on Arturo Soria), which will account for most of the committed new space, are expected to open this year.
With regards to the distribution of new vacant space to be incorporated until 2022, the Urban Area will account for just over a third of the total (>100,000 sq m), mainly from refurbishment projects. However, Méndez Álvaro will make up a large proportion of new developments within the M-30 ring road. The northeastern quadrant of the inner periphery will house 48% of new vacant space, stemming mostly from new developments. By submarkets, of particular note are MadBit (with close to 40,000 sq m of new vacant space) and the PAU of Las Tablas (with 19,000 sq m).
RentsThe first quarter of 2021 ended with an average rent of €17.33 per sq m/month, which represents an increase of almost 2.2% compared to the same period last year. However, this is the third consecutive quarter-on-quarter decline (-1.8% vs. Q4 2020), a period in which rental values have been affected by the health crisis.
The Méndez Álvaro submarket, inside the M-30, and the northeast quadrant, outside the central hub, account for the new developments
that will enter the stock between 2021 and 2022
Main Deals - Occupiers Market Q1 2021
Tenant Market Zone Floor Area (sq m) Activity Sector
Just Eat Urban Area 7,200 Distribution
Ilerna Online East 5,200 Business Services
MIchelin Ctra. Colmenar 4,000 Industry - Manufacture
Ymedia Urban Area 2,500 Mass Media
EvoBank Urban Area 2,300 Bank - Finances
Fuente Savills Aguirre Newman
Activity by Market ZoneFor the second consecutive quarter, the percentage of deals within the M-30 has increased, rising above the average level since 2000 (nearly 47%), and above the figure it represented in Q1 2020 by more than 10 points: 54.3% vs. 43.6%. The greater activity within Madrid’s hub did not translate into a higher total take-up, as the largest transactions took place in the periphery, with the exception of the more than 7,000 sq m signed by Just Eat on Méndez Álvaro.
58% of the take-up was evenly distributed between the submarkets closest to and furthest from the ring road. The East Zone stands out, which accounted for 14% of the total space let and 11% of the agreements, as a result of the growth seen in the technological district of MAdBit (Julián Camarillo). The A6 area in the Outer Periphery, specifically Pozuelo, accounted for almost 10% of the total take up with the sale of almost 5,500 sq m to UNIR.
2020 was a year in which the amount of space taken up in the CBD (within the M-30) was almost equal to that of the Urban Area due to the entry of the Public Administration in Azca and Torres Norte. However, at the beginning of 2021, this amount returned to levels typically observed in the historical series (9.3% in Q1 2021). 36% of total demand (66% of the total within the M-30) was focused on the Urban Area, where 30% of the space signed was let. Méndez Álvaro, which returned to availability after a few months of almost full occupancy, accounted for 38% of the take-up registered in the Urban Area, with only three agreements.
Barrio de Salamanca continues to attract the attention of occupiers interested in medium-sized, well-located spaces (average surface area of 602 sq m in Q1 2021), both in the CBD and further afield. It made up 20% of all space taken up within the ring road and 27% of deals.
Activity SectorDemand from professional service companies continues to lead the market, although its presence has declined compared to other years. Their activity accounted for 26% of deals in Q1 2021, six points below the average in the historical series since 2000 (32.2%).
The energy sector represented 14% of deals signed, making it, for the second consecutive
de tamaño medio de las operaciones <10.000 m² registradas hasta septiembre (+11% respecto al nivel de 2018)
Yo hablaría del incremento de actividad del Sector Público, sanidad, etc... Te propongo algo como : "Destacar el incremento de la demanda en 2020 especialmente del sector público, empresas relacionadas con la tecnología y la sanidad"
Spotlight Madrid Offices Q1 2021
4savills-aguirrenewman.es/research
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
5
10
15
20
25
30
35
40
45
50
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Q1
21
€/sq
m/m
onth
Average Closing Rent Prime CBD Rent Vacancy Rate (right axis)
Source Savills Aguirre Newman
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2021* 2022*
sqm
Speculative Commited
Source Savills Aguirre Newman
0
5
10
15
20
25
30
35
40
0
1,000
2,000
3,000
4,000
5,000
2000
2001
2002
2003
2004
2005
2006
2007
2008
(*)
2009
2010
2011
2012
(**)
2013
2014
2015
2016
2017
2018
2019
2020
2021
mill
. €
Q1 Q2 Q3 Q4 Transacted Assets Q1 (right axis)
Source Savills Aguirre Newman / *excluding Ciudad Financiera / **excluding Torre Picasso
Future Supply by Marketing Status - 2021 - 2022
Vacancy Rate and Rents
Investment in the Madrid Office Market
Overall, asking rents in the Madrid market remain at levels very similar to pre-COVID. There were slight decreases in the closing rents for some buildings, which were more pronounced across assets outside the M-30. In fact, concessions to tenants in terms of rent-free periods, contributions to works, etc. have been increasing.
Despite this financial assistance for the occupier and the reduction in rents in order to attract demand, the weight of transactions for business properties between €20-25 per sq m/month (15.6%) is increasing, as is the €25-30 per sq m/month bracket (15.6%). Deals of <€15 per sq m/month accounted for barely 40% of demand in Q1 2021, below the average percentage in this range since 2000, of around 45%.
The start of the year continues the declining trend in rents of the last three quarters by 0.25 percentage points. Achievable Prime CBD rents stood at €34.25 per sq m/month, and prime rents outside the M-30 at €17.75 per sq m/month. Meanwhile, secondary areas within the M-30 closed at €23.75 per sq m/month and secondary areas outside the M-30 at €11.50 per sq m/month. The latter showed the biggest year-on-year drop at -8%, while the rest of the market fell by an average of -3%.
InvestmentThe commercial investment market (offices, retail, industrial and hotels) ended the first quarter with just over €900m, down 60% from the same quarter of the previous year. By segments, offices suffered one of the sharpest declines (around 70%). However, it is important to take into account that, on the one hand, Q1 2020 developed at a regular pace until the last weeks of March, while on the other hand, three of the six megadeals of the year (≥€100m) were closed in Q1 2020.
In the year-on-year comparison, the multi-family segment (BTR: Build-to-Rent and PRS: Private-Rental-Sector), with just over €1,000m in Q1 2021, recorded a notable increase compared to Q1 2020 (+44%). As for the logistics market, although the Q1 2021 figures do not reflect a strong position, it has a very active demand in search of opportunities, with needs that are not being met by the scarce available product.
The increase in activity in these two top performing markets relegated the presence of offices, which accounted for only 15%,
Asking rents remain similar to pre-COVID levels but closing values have been adjusted. Despite this, deals between €20-30 per sq m/month
have increased their presence
Spotlight Madrid Offices Q1 2021
5
Main Deals - Investment Market Q1 2021
Source Savills Aguirre Newman
Investment activity started the year at a slower pace due to the shortage of product. Liquidity and a pressure to buy Core product
indicate a much more active climate in the second half of the year
compared to around 40% in the historical series.
When looking at the quarterly figures by location, the distribution indicates that Madrid has shifted from its position of dominance compared to previous years. The mere €80m transacted accounted for almost 30% of the total, which contrasts with the 70% recorded in the historical series.
In terms of market areas, more than 90% of the total took place outside the M-30. Consolidated submarkets with good fundamentals can reduce the risk sometimes associated with the periphery. One of the deals registered in the northern area will involve a change of use to residential. The only transaction identified in the central hub of the city was a floor in a multi-property building in Chamberí.
Despite the slowdown in activity, the market remains active and investors are looking for new opportunities. On the sell side, there is a move to bring product to market in open sales processes, which will coincide with off market assets. These continue to attract a lot of interest in order to avoid competition in very crowded processes.
Core and core+ assets continue to be the focus of demand. Although a significant part of the available product falls into the value-added category, the location of the assets will be a key factor in attracting investor interest. Moreover, once the building is repositioned, it will also attract the interest of occupiers, with a high level of occupancy adding further value to the building.
YieldsThe low market activity makes it difficult to establish yield levels. In general terms, the prime product remains stable, and there could even be some compression in very specific assets. Despite the slowdown in the market and the decline in expectations for rental growth, investors are confident in the product and are aware that the health crisis has not affected the price of the best assets.
On the other hand, there are some doubts with regards to value-added product, as it implies a certain level of risk, mainly in areas with a low level of consolidation, weak fundamentals and no easy access by public transport.
Outlook
• The progression of the health crisis and the pace of the vaccination rollout will continue to impact Spain’s economy. The return to normality will favour the reopening of offices. This will lead to decisions on the actual need for space based on the level of flexible and remote working involved.
• Meanwhile, the business sector will continue to focus on overcoming this transitional year, while waiting for the many uncertainties regarding the health, economic and business outlooks to be resolved. Effective demand is currently expected to be more active at the end of 2021 than at present, as a result of projected measures to address the pandemic.
• There will be new space entering the market through new and refurbished projects, along with a slowdown in demand for new headquarters, which will support a continued albeit moderate increase in the vacancy rate in all areas.
• The different models of the future of work are still in the definition phase, pending the lifting of social distancing restrictions in enclosed spaces, as well as the way of working that is determined after the pandemic has passed. In anticipation of that time, many companies are already conducting employee surveys to identify preferences and needs, which will establish the degree of face-to-face and flexible working in the future.
• The entry of further new and refurbished vacant space into the market and increases (albeit slight) in vacancies are two factors that will affect supply and demand in the market, leading to further rent adjustments.
• The outlook for the second half of the year is optimistic, as occupier interest in potential changes in location has soared in Q1. Additionally, large enterprises, despite the remote working in place due to the pandemic, are so far not inclined to reduce space.
• Although the year started slowly in the investment market, activity is expected to pick up significantly in the second half of the year. Despite the shortage of product, there is still a lot of liquidity in the market and pressure to buy from core investors. This results in refurbished, well-located assets with long-term contracts transacted very quickly and at pre-COVID levels.
Asset Market Zone Purchaser Vendor
Ctra. La Coruña. km. 16,400 A6 IBA Capital Partners Naropa
Gabriel García Márquez, 2 A6 Corum AM Blackstone
Arturo Soria, 261 North Meridia+Osim Inversiones BBVA
Suelo de Sanchinarro North GMP NA
Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.This bulletin is for general informative purposes only. Savills accepts no liability whatsover for any direct or consequential loss arising from its use. It is strictly copyright and reproduction of the whole or part of it in any form is prohibited without permission from Savills Research. © Savills Commercial Ltd.
Ana ZavalaDirector Office Leasing+34 91 319 13 [email protected]
Research
Gema de la FuenteResearch+34 91 319 13 [email protected]
Ángel EstebaranzDirector Office Leasing+34 91 319 13 [email protected]
Elisa EstacaAssociate Director Capital Markets+34 91 319 13 [email protected]
Pelayo BarrosoResearch+34 91 319 13 [email protected]
Isabel GilResearch+34 91 319 13 [email protected]
Savills Aguirre Newman ResearchWe carry out a thorough and objective analysis of the real estate market in order to provide our clients with accurate information on the current situation in each of the sectors, helping them make the right decisions at each moment.
Hipólito SánchezHead of Offices+34 93 439 54 [email protected]
Oficinas
