Uncertainty slows down office market in Madrid


Madrid's office market is slowing down, according to Savills.

The firm's latest report shows that gross take-up of office space to rent fell to 140,000 square metres, a 19 per cent decline compared to 2011.

The dip has been attributed to uncertainty in the country's market. Government bodies are engaged in space optimisation plans and as such remain out of the market.

Just over 1.5 million sq m of vacant space has meant that once again, the vacancy rate has reached around 12%. Properties that have been delivered in recent months are either owner occupied, or occupied by a tenant that had signed a pre-let contract years ago. However, these moves will take place gradually, which, for the moment, will curb the amount of supply in the market.

An ever increasingly weak demand is incapable of taking the excess supply in the market. The economic climate is not favouring a recovery, and rental prices will continue to fall until the two balance out.

Indeed, the Spanish economy continues to worsen in 2012, in the midst of an economic slowdown in Europe. The majority of economic indicators (supply and demand aggregates, business and consumer confidence indicators, job market figures…) are a clear indication of this. GDP growth in the first quarter is therefore expected to decline slightly (four tenths of a percent year-on-year), and economic forecasts for the year are expected to be downgraded.

Investment in the office market has almost reached a standstill. Excluding the sale of Torre Picasso, the figure for the first half of the year barely reached €50m, which is 69% less than the volume achieved in the first half of last year.

Uncertainty prevails in the capital's business sector. Take-up between April and June amounted to just over 80,000 sq m, which is 17% below the figure registered in Q2 2011. Figures for the first half of the year are similar, amounting to around 140,000 sq m, which is a 19% year-on-year decline. The quarter-on-quarter and year-on-year figures for transactions signed do not indicate that the market is recovering – both figures are negative.

On the other hand, the seasonality of the quarters leads us to compare data from the same periods. Generally speaking, the results of the second and fourth quarters, exceed those of the first and third quarters, although on this occasion, as was expected, take-up was 38% above the figure for Q1 and the number of transactions fell by just over 7%. This would once again indicate that demand is waiting for the economy to show clear signs of recovery.

The increase in take-up compared to the previous quarter was a result of larger transactions in the market (over 1,000 sq m), which increased from 11% in the previous quarter, to almost 22% in the second quarter. In addition, whereas only one transaction of over 3,000 sq m was registered in the first quarter, six transactions were completed between April and June.

Letting is currently far more popular than selling. The sharp decline in prices could make one think that now is a good time to make the most of opportunities, but the lack of financing and high credit prices are some of the obstacles that are delaying or causing transactions to grind to a halt. Only those who have sufficient liquidity can obtain a mortgage loan.

In terms of office space , "hardly anything has changed", adds Savills. Vacant space remains above 1.5 million sq m and the level of office stock has barely increased. Properties that have been handed over in recent months and come onto the market are either owner occupied, such as the Repsol Campus, or have already been pre-let after having signed a pre-let contract years ago, such as Cuatrecasas's headquarters.

The amount of new and refurbished space in the pipeline for 2012 continues to be in the region of 300,000 sq m, 40% of which has already been delivered in the first six months of the year. It is worth remembering that this figure includes both new developments, that will increase the level of stock, as well as comprehensive refurbishment projects, which amount to around 55,000 sq m.