Offices regain prominence within the Spanish real estate sector. In the first half of 2022, contracting has beaten the average of the historical series in Madrid and Barcelona for the first time since 2019, exceeding expectations given the economic uncertainty that has arisen in recent months. This is one of the main conclusions of the Office Pulse Savills, the sectoral event that performs a quarterly analysis of the evolution of the office segment and which has been moderated by Hipólito Sánchez, Executive Director of the office division of the consulting firm in Spain. On this occasion, the meeting was attended by Ángel Estebaranz, National Director Offices; Estefanía Pardo, Senior Consultant Leasing Offices in Madrid; Natalia Montal, Associate Director of Office leasing in Barcelona; Jéssica Estévez, Associate Offices leasing in Barcelona; Daniel Norrby, Associate Director Offices Capital Markets Madrid; and Carlos Bajo, Director Offices Capital Markets Barcelona.
Experts from both cities point out that the trend of increasing market polarization and a clear preference for class A or B+ buildings continues. Thus, quality properties in urban locations, with good connections and that meet the main sustainability criteria, continue to generate interest among tenants and their rents are experiencing smooth and sustained increases over time. It also highlights, especially in Madrid, the increase in demand for offices already established, and in both cities, the demand for flexible spaces and offices with outdoor spaces such as terraces, patios or gardens, and work areas where corporate engagement can be worked on. On the other hand, some buildings located on the periphery that are not new developments or have recently been rehabilitated are becoming a submarket that experiences greater difficulties and a slight decrease in rents as this area registers greater availability.
According to data from Savills, the gross hiring of offices in Madrid in the first half has maintained a good evolution since the beginning of the year, reaching 270,000 sqm until June, 54% more than in the same period last year and 5% by above the historical average. In the words of Ángel Estebaranz, “we have seen a much more active market than we had anticipated, with solid demand, stable availability rates and rents that vary depending on the location and quality of the assets. The demand between 500 and 3,000 sqm is supporting the market in the absence of large operations, and this provides an important balance for the market”.
During this first half of the year, buildings that were particularly active on the market stood out, such as Velázquez 86D, fully refurbished by Colonial, or the new OM Infinito building promoted by Torre Rioja and located in the MadBit district.
Theoretical rents grow again in prime CBD, standing on average at €34.75/sqm/month, while between the M-30 and M-40, rents for prime buildings remain stable at €17.75/sqm /month. The total availability rate has remained stable in the last three months in Madrid, rising very slightly compared to the first quarter and reaching 9.43%, this being higher outside the M-30 (11.66%) and much lower (5.8%) in prime areas, CBD and urban areas. From Savills they foresee the rehabilitation or new construction of 467,000 sqm of offices until the end of 2023, of which 62% will be rehabilitation compared to 38% of new construction. Approximately 25% of the total already has a committed user.
The hiring of offices in Barcelona has remained stable in the first half and closed June with 182,200 sqm, 37% more in the interannual rate and 16% above the historical average. Between April and June, the absorption in the new business areas has regained its leading role with 38% of the absorption of the total. The city center accounts for 33% with the entry of new rehabilitated projects and the periphery, despite having slightly decreased, has concentrated 21% of the total contracting.
According to Natalia Montal, “between January and June, 52 operations of more than 1,000 sqm have been signed in Barcelona, 73% of which involve net contracting and expansions, that is, new companies and business growth in Barcelona. Most of these transactions have been carried out in the city center and new business areas, mainly 22@, which has concentrated 29% of the total area contracted during the 1st semester”. Thus, operations such as the rental of 9,800 sqm of Travelperk or the lease of 4,900 sqm of SocialPoint stand out, both in different locations in the technology district.
As for the new supply, Barcelona will host 330,000 sqm of new offices in 2022 and some 220,000 sqm in 2023. In both cases, the volume of new supply that the rehabilitation of buildings will provide both in the center and in 22@ stands out. From Savills they also point out the relevance of flex spaces in the market of the Catalan capital, where the technology sector is one of the largest contractors. In this way, the contracting of flexible spaces in Barcelona has accounted for 10.4% of the total office absorption in the first half of 2022. Specifically, between April and June, 13,700 sqm of flex space have been contracted, the best quarterly hiring figure for the last two years.
As in Madrid, the vacancy rate has not experienced relevant variations in the global market data, which stands at 8.89%. This has decreased in prime CBD areas and on the outskirts, has remained stable in the city center, but has increased in the new business areas, especially in 22@ due to the delivery of new projects and the relocation of some companies.
Theoretical rents have remained stable in the second quarter. In prime CBD they are around €27.5/sqm/month, while in the city center and new business areas they remain at €23/sqm/month. In the periphery they have been revised slightly downwards and are now close to €13/sqm/month.
Investment in offices in Spain in the first half of 2022 has reached 1,250 million euros, 18% more than in the same period of 2021. The entry of product in the Madrid market after two years of scarcity has boosted activity in the capital to exceed the total volume registered in all of 2021 by 7%, with 760 million transacted in 35 assets until the end of June.
According to Savills, investor interest in the Madrid and Barcelona office markets continues to grow, especially in core and core+ assets, prioritizing long-term contracts and good covenants. The product pipeline in the market in both cities amounts to almost 3,000 million euros according to data recorded by Savills, who trusts with this figure that 2022 will close with a notable level of investment in offices, although the total will not be transacted . The consultant's experts point out that the current uncertain economic context translates into a more conservative position in investment. "We see a sense of prudence, and it seems that capital is waiting for September to see what will happen in the coming months," says Hipólito Sánchez. "Given the rise in interest rates, it is logical to think that yields will be pushed up," he concludes.
Finally, in relation to the negotiation of contracts in the face of an economic situation marked by a notable increase in the CPI, Savills experts maintain that both owners and tenants and mediators are making efforts to find beneficial solutions for all parties and that, in the coming months, the key will be adaptability and flexibility.