Spain Office Real Estate Market - Growth, Trends, COVID-19 Impact, and Forecast (2023-2028)

The size of the Spain Office Real Estate Market is USD 2.10 billion in the current year and is anticipated to register a CAGR of over 4% during the forecast period.

Key Highlights

• The COVID-19 pandemic significantly affected how the Spanish office real estate market has been performing recently. The crisis has specifically caused a significant drop in non-residential investment and a correction in sale prices, transaction volumes, and new finance activities. Spanish real estate investment trusts with a focus on this sector have also been impacted, both in terms of the number of new vehicles issued as well as the value of their stock prices and real estate assets. In contrast, there has not yet been a major decline in credit quality associated with the commercial real estate market.
• The Madrid market added 384,000 m2 of office space in the first nine months of 2022, and 308 letting contracts were completed, indicating that recent months have seen solid activity in the office sector. In this way, the surface area and operation levels for the entirety of 2021 were met in the first three quarters of the year.
• In Barcelona, the use of office space increased to over 254,000 sq m in the first nine months of 2022 through about 250 deals. This statistic is approximately 9% higher than that for the same period in 2021 and roughly average for the previous five years. In this third quarter, Barcelona had a take-up of 91,000 square meters, a 24% decrease from the same period last year.
• The strong pulse of the Spanish labor market in recent quarters has been evident in the office sector as well. The number of office-based employees is expected to maintain its good growth rate, above 3%, in 2023. This dynamism, along with the rising office occupancy rate, has resulted in a favorable backdrop in demand for office space.

Spain Office Real Estate Market Trends

Office Take-up Remains Strong in Spain

Office spaces in Madrid have added 384,000 m2 of office space in the first nine months of 2022, and 308 letting contracts were completed, indicating that recent months have seen solid activity in the office sector.

In this way, the surface area and operation levels for the entirety of 2021 were met in the first three quarters of the year. Take-up in the third quarter of 2022 was 135 500 square meters.

Companies continue to place a premium on high-quality structures: A and B+ buildings account for 65% of absorption, similar to recent years when close to 70% of demand was satisfied by high or extremely high-quality structures.

For instance, Omb 4-16, Arapiles 13, and Miguel 23 are three instances of the largest deals inked in the third quarter of 2022 that took place in recently renovated structures.

Rise in investment in office spaces

The office investment market in Madrid performed well in the first half of 2022, returning to normal levels following an abnormally slow 2021. An investment of EUR 541 million (USD 575 Million) has been made in Madrid, which is half the amount spent in Spain.

Although still 12% behind the average volume recorded for the first half of the five years prior, this statistic shows an impressive growth of 280% over the same period last year. A total of EUR 198 million (USD 210 million) was invested during the second quarter of 2021, which was 47% less than the EUR 337 million (USD 358 million) invested during the first quarter.

Even while the city's volume is returning to more typical levels, it is crucial to draw attention to the fact that there have not been many large-volume transactions this year - only 3 have over EUR 50 million (USD 53 million). These transactions will take place in the second half of the year if the macroeconomic environment does not hinder them, as there is a strong pipeline of current projects, some of bigger volumes, which were extremely frequent in the city's office market.

Prime Yield in the Central Business District is still 3.25%, despite recent investments showing that it can even be reduced in some core and core+ properties. In any case, macroeconomic indicators are inevitably moving upward, and we will observe whether rising finance costs will ultimately cause readjustments.

In reality, several markets have already reacted to these changes, as seen in the case of CS, where the Prime Yield has increased by 25 basis points to 4.25%, or for markets outside the M-30, where an adjustment of 25 basis points to 5.00% has also been made.

Spain Office Real Estate Market Competitor Analysis

The Spanish office real estate market is highly fragmented, with the presence of both global players and regional players, and the competition in the market is very high. Some of the major players include Savills Spain, CBRE, JLL, Actividades de Construcción y Servicios, etc., The market was anticipated to regain normalcy by the end of 2022. Companies are gearing up to meet future needs, and many companies are entering the market for further opportunities.

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