Colonial Investor Day OFFICE MARKETS Mr. José Navarro Managing Director Savills Spain. Madrid 16/10/18

Transcription

1 Colonial Investor Day OFFICE MARKETS Mr. José Navarro Managing Director Savills Spain Madrid 16/10/18

2 15 October 2018 Spain Office Market

3 Madrid Office Market Stock c mill sq Only 16% new/refurbished/updated 21% IN M-30 12% OUT Vacancy Rate 10% 7% IN M-30 12% OUT Take-Up Jan-Jun 2018: 273,000 sq m No. of deals Jan-Jun 2018: 312 deals -13% y-o-y -16% y-o-y Average closing rent Jan-Jun 18 Excl Office Build. 19 /sq m/month Weighted average closing rent 21 /sq²/mes

4 Madrid CBD Market Prime CBD Stock c.1.98 mill sq Only 30% new/refurbished/updated 56% of total New/Refurbished/Updated IN-M-30 40% of the updated buildings just superficial improvements Prime CBD Vacancy Rate 8% Current Supply: 155,000 sq m Occupier s activity Take-up: 56,000 No. Deals: 72 Take-up -19% y-o-y -32% with regard the latests peak of market Prime CBD Achivable rent 32 /sq m/month +10% y-o-y -24% with regards to the latest peak 4

5 Barcelona Office Market Total Stock 6 mill sq m Vacancy Rate 6.5% Occupier s activity Take-up: 207,500 No. Deals: 311 Take-up 0% y-o-y 4% with regard the latest peak of market Average closing rent Jan-Jun 18 Excl Office Build. 13,45 /sq m/month Weighted average closing rent 13,60 /m²/mes Prime CBD 1.4% Occupier s activity Take-up: 8,300 No. Deals: 26 Take-up -50% y-o-y -30% with regard the latest peak of market Prime CBD Achivable rent 24,50 /sq m/month +8% y-o-y % with regards to the latest peak 5

6 Rents with a clear upwards trend No. of Deals by Rent Range in Commercial Office Buildings (Exclusive + HT) (accumulated until Q2)* ,8 <4.99 1, , ,8 4, , , , ,8=>40 Source: Savills Aguirre Newman Research 6

7 and investment volumes going upwards Investment activity in the Madrid office market Q1 Q2 Q3 Q4 Average Inv. Vol. No. Deals until Q3 (right axis) mill (*) (**) Source: Savills Aguirre Newman Research / *excluding Ciudad Financiear / **excluding Torre Picasso / 2018 September 7

8 with bigger transactions 80 Average Investment Volume by Asset mill (*) (**) Source: Savills Aguirre Newman Research / *excluding Ciudad Financiera / **excluding Torre Picasso / 2018 September 8

9 And an increasing appetite for out of M30 Distribution of Volume Transacted with regard to the M % Inside M-30 Outside M-30 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% (*) (**) Source: Savills Aguirre Newman Research / *excluding Ciudad Financiear / **excluding Torre Picasso / 2018 September 9

10 How is the stock evolving?

11 Renovation of the stock The quality of the Madrid office market stock has improved notably in recent years, especially within the M30. But there are still a large number of outdated buildings. 100% 90% 80% 70% Updated Stock Dated Stock 60% 50% 40% 30% 20% 10% 0% Inside M-30 Outside M-30 Source: Savills Aguirre Newman Research 11

12 Unstopable upwards trend More than 300 buildings have been developed, refurbishsed, updated or had superficial works (cosmetic capex) in the last 4 years. They represent only 16% of the total Madrid office market and account for 23% of the office surface. 25% 20% 15% Updated Floor Area Evolution of the Updated Stock Updated Buildings 10% 5% 0% Source: Savills Aguirre Newman Research 12

13 Accumulated renovation Works million sq m have been renovated over the past 5 years and more than 300 buildings Updated Stock Updated Buildings (right axis) sq m

14 Is this the Red Queen Effect?

15 Not all works are the same in this race.. Renovated buildings include: New developments (after 2010) Refurbishment projects (after 2010) Updated buildings Cosmetic Capex (superficial Works. Mainly located inside the M % of the total renewed surface in the city) Renovated Buildings by Type of Works New Development Refurbishment Project Updated Cosmetic Capex Source: Savills Aguirre Newman Research 15

16 Updated vs. Dated evolving rents The gap between average closing rents in high quality buildings and those with superficial works remains quite constant Average Closing Rents in Updated and Outdated Buildings Updated Stock Cosmetic Capex Rest of the Market 20 /sq m/month Source: Savills Aguirre Newman Research 16

17 Take up in dated buildings is reducing constantly. The activity in the outdated buildings is decreasing. It has gone from 60% to 40% since The take-up has shifted to renovated assets. 70% 60% 50% %Take-up by type of Renovating Works % 30% 20% 10% 0% New Development Refurbishment Project Updated Cosmetic Capex Rest 17

18 Large demand is looking for brand new products But large demand looking for quality spaces find the answer to their requirements in new developments and refurbishment projects Average Deal Size by type of Renovating Works sq m New Development Refurbishment Project Updated Cosmetic Capex Rest Total Market Source: Savills Aguirre Newman Research 18

19 Refurbishment quality is perceived by tenants. Renovated buildings achieve higher rents. But quality is perceived by occupiers and they all do not perform in the same way Average Closing Rent by type of Renovating Works /sq m/month New Development Refurbishment Project Updated Cosmetic Capex Rest 19

20 And cosmetic capex has limited impact Inside M30 the value add of Cosmetic Capex is low and will quite likely be comoditizied in the near future as it becomes more and more frequent and becomes the new low standard. 8 6 Gap betweeen Average Closing Rent by type of Renovating Works and the Total Market Level - Inside the M /sq m/month 2 0 New Development Refurbishment Project Updated Cosmetic Capex -2-4 Source: Savills Aguirre Newman Research 20

21 Is evolution going Green? Sustainability is more and more present in our business. Certified buildings account for 13%. From the demand side, in the 1H 18 they represent 18% of the number of deals and 27% of the transacted surface. 30% 25% 20% 15% Occupiers activity in Green Buildings Green Buildings Take-up Green Buildings Deals 10% 5% 0% Source: Savills Aguirre Newman Research 21

22 Is evolution going Green? In terms of rental levels, Green Certifications have been 3 /sq m/month above buildings without any certification Average Closing Rents by Green Certifications LEED BREEAM Without Green Certification /sq m/month Source: Savills Aguirre Newman Research 22

23 Conclusions Take up at healthy levels in both Madrid and BCN, but with a downwards change from last year. Rents consistently moving upwards in all áreas. Investment volumes recovering as investors soften their criteria and jump outside the city centre. Increasing number of buildings renovated in a trend that is unstoppable. Crowding out effect for the buildings that have not been renovated. Customers perception of quality is improving: Intensive capex is paid for by tenants. Cosmetic capex will quite likely be comoditizied: Red Queen Effect. The market is finally going Green with labelled buildings achieving premium rents. 23

24 The Red Queen Effect "Well, in our country," said Alice, still panting a little, "you'd generally get to somewhere else if you run very fast for a long time, as we've been doing. "A slow sort of country!" said the Queen. "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"

25 Thank you 25

26 Colonial