Signs of prelets spark optimism in Madrid office market

Madrid’s office market has seen the return of prelets including a 15,000 m² deal signed by AENA (Spanish Airport and Air Travel) at the beginning of Q2, in addition to over four deals signed in the northern zone in the last quarter, according to global real estate adviser Savills.

The market saw gross take-up rise 54% in Q1 compared to the year-earlier period to nearly 100,000 m². The average size of units leased increased to 977 m² from 677 m² in Q109. Amid these positive signs, over 260,000 m² of speculative new build space is anticipated before year-end 2010, which will cause vacancy rates to rise further, the adviser said.

Savills puts total office stock in Madrid at 12.57 million m2, of which 1.44 m² is vacant. This translates into a vacancy rate of 11.5%. Although decreases in prime rents have slowed over the past months, by 2% in Q1 from Q4 2009, or stabilised, Savills anticipates that average rents could continue to fall across the entire market.

Luis Espadas, Capital Markets Director, said: 'The investment market is currently on tenterhooks. Pressure to invest in both national and international prime office buildings (in the CBD or consolidated periphery) continues to increase, but there is no corresponding yield shift to fulfil potential seller’s price expectations.'

Investment volume reached a total of just EUR 45 mln in Q1, with only three deals signed. This takes the average volume back to 2008 levels when the market first started to fall. Savills said that international funds continue to look closely at the market but lack of supply and an aggressive approach from national players has not led to any deals involving international parties over the past quarter.