European Real Estate Guide Madrid Offices · Assestment Methology) is the world's foremost environmental assessment method and rating system for buildings. ... Savills is a leading

European Real Estate GuideMadrid Offices 2014

Savills World Research Madrid Offices

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2014

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European Real Estate Guide | Madrid Offices

GRAPH 1

GDP growth

Source: Oxford Economics / *forecasts

-6%

-4%

-2%

0%

2%

4%

6%

8%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*

2015

*

Yoy

chan

ge

Spain Madrid EU 27

GRAPH 2

Service sector employment growth

Source: Oxford Economics / *forecasts

-4,0%

-2,0%

0,0%

2,0%

4,0%

6,0%

8,0%

10,0%

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

*

2015

*

Yoy

chan

ge

Spain Madrid EU 27

SPAINKey facts 2014

Currency EUR

Population (in million) 46.8

Urban population (% of total) 79%

GDP per capita (in USD) 29,863 (*)

Inflation -0.07%

Construction Costs Index (CCI) (2010=100)

103.75

Long term interest rate 1.78%

Govt debt (% of GDP) 92.7%

FDI (in billion USD) 44.92 (*)

Fitch Credit rating BBB+

Corruption Perceptions Index / 10 6.0

VAT 21%

Source: Oxford Economics, World Bank, Eurostat, Transparency

International, Miniterio de Fomento / (*) 2013

Local market definitions■ New building: Newly built building or building built in the past five years, which has never been occupied.■ VERDE: Spanish green certification granted by Green Building Council España.■ LEED (Leadership in Energy and Environmental Design): Internationally recognized green building certification system.■ BREEAM (Building Research Establishment Environmental Assestment Methology) is the world's foremost environmental assessment method and rating system for buildings.■ Take-up: Total volume of lettings and sales to end-users, including pre-lettings and excluding lease renewals.■ Pre-letting: Transaction signed at least 6 months before the completion

of a new or refurbished building.■ Net absorption: Net sum of the space taken-up minus the space vacated.■ Stock: Total occupied and vacant space.■ Immediate supply: Sum of all space currently available on the market.■ Future supply: Sum of all new or refurbished building space planned requiring a building permit.■ Achievable CBD Prime rent: Rental value for prime area based on market sentiment and expertise.■ Weighted average rent: Calculation of average rents taking into account the weitght of the floor area transacted.■ Rents: quoted per sq m per month.■ Investment volume: Total amount in euros of commercial property sales to

investors including office, industrial, retail and hotels.■ Yield: Market yields are generally quoted gross.

Measuring practicesAll areas are quoted in square meters.■ GIA (Gross Internal Area): The Boundary Line of this Unit of Mearurement coincides with the perimeter of the wall of the buildings internal face measured from ground levels.■ NA (Net Area): is the entire space marked by a Boundary Line except for areas occupied by all construction or structural elements. I.e. the standards will not count the divisions that make up the perimeter, load-bearing walls, pillar, etc. Surface areas with a height under 1.50 meters will also be excluded

2014



MAP 1

Survey map - Madrid Offices

Major submarkets■ CBD: The Castellana axis is the most representative office location in Madrid where some of the city's most remarkable office buildings can be found, such as the Edificio Piramide and high-rise office towers like the Torres Colon and Torre Picasso. A number of government and EU organisations are located here as well as the Spanish headquarters of private companies like Deutsche Bank. Also the financial centre of Spain, the AZCA complex, is located on the last stretch and is considered to be one of the capital´s main financial hubs. The office space along the CBD area comprises almost 1 m. sq m (or 7% of the total GLA in Madrid).

■ Urban Area: from the heart of the office market to the M-30 ring road. It is the largest and most diverse market area with a significant residential component, where traditional office buildings coexist with residential properties, which in turn often house space that

has been adapted to commercial property activities. To cite some of the submarkets, which sometimes coincide with administrative neighbourhoods, we would note the Centre area, Salamanca, Chamberí, the area surrounding the Retiro Park, Cuzco, the area around Chamartin train station, etc. We would also note the CTBA (Cuatro Torres Business Area) at the north end of the Paseo de la Castellana, and while it does not benefit from a prime location, it has very prestigious properties.

■ Inner suburbs: are comprised of urban areas closed to the M-30 ring road (outside). Among them are the Northern zone that includes business parks located near the Nudo Norte and on both sides of the first section of the A-1 motorway; the Eastern zone where one of the main business areas is the A-2 motorway leading out of the city forms; the Southern zone that is a fully consolidated submarket located along the inner edge of the M-30 ring road that has sprung up around the Méndez Álvaro

station and the Northern quadrant of the M-40 ring road that is the Campo de las Naciones business park and its subsequents extensions and is considered the main prime area outside of the M-30.

■ Outer suburbs: are made up of business clusters that emerged along the principal access roads, and generally from part of other towns. Among these are the Moraleja Business Park and the Arroyo de la Vega area off the A-1 motorway, the Eisenhower and San Fernando de Henares areas off the A-2, as well as other office complexes in Pozuelo and Las Rozas off the A-6. Rivas Vaciamadrid off the A-3 motorway has a huge business complex called Rivas Futura that is located in a not very competitive area and the closing rents are currently among the lowest in the market, in some cases, equivalent to industrial rents. Finally a small office submarket has emerged in the shadow of the Tres Cantos Technology Park.

2014



OwnershipConditions and restrictions■ Foreign ownership: no restrictions.■ Type: Freehold mainly

Investment vehicles■ Socimi: Listed limited liability company dedicated to the purchase, development and refurbishment of real estate. Spanish equivalent of REITs.Legal entities (residents and non-residents) benefit a deduction over the tax credit.■ SPV'S: The usual structure for international funds consists of the set up of an sPV to acquire the asset that is usually 100% owned by a Dutch BV.

Costs■ Agency fees: 1% - 1.5%. ■ Legal fees: 0.15 - 0.25%■ Property transfer tax (stamp duty): Each sale, grant and transfer of real estate or of an interest in real estate shall be presumed taxable. The applicable tax rate will depend on the value of the real estate and the region. In Madrid the tax is around 1%.

Ownership costs■ IBI (Real Estate Tax): Depends of the area, around 0.4% to 1.1%.■ Capital Gains Tax on the property sale: Municipal payable on sale.■ Corporate taxes: 30%.

Table source: Savills

TABLE 1

Key investment indicators

Market ZonesInvestment

volume 2014

5-year average investment

volume

Prime yield Q4 2014

Annual change in

bps

Secondary yield

Annual change in

bps

CBD €44.90m €84.80m 5.0% -100 5.25% -100

Urban Area €372.20m €215.90m 7.0% -75 7.25% -75

Inner Suburbs €839.90m €251.20m 6.5% -100 6.75% -100

Outer Suburbs €346.30m €180.90m 8.5% -50 8.75% -50

CASE STUDIESCore investment deals: Taxation impact on gross to triple net yield gap

Case 2: Share deal■ District: Urban Area■ Purchaser: Private equity■ Size: 47,000 sq m■ Price: >€100,000,000■ Gross yield: 6.25%

■ Transfer tax: 1.00%■ Due diligence cost: 0.25■ Agency fee: 0.00%

Case 1: Asset deal■ District: Prime OOT ■ Purchaser: Private equity■ Size: 13,000 sq m■ Price: €30,000,000■ Gross yield: 7.03%

■ Transfer tax: 1.00%■ Due diligence: 0.55%■ Agency fee:1.75%

Triple net yield: 6.79% Gross to net yield gap: 24.10 bps

Triple net yield: 6.36% Gross to net yield gap: 58.47 bps

2014



CASE STUDIESLetting deals: Average annual letting cost per sq m and per employee

OccupancyLease sturcture■ Typical lease length: 3+2 years, with options to break and extend the lease in year 3. In accordance with the Spanish Urban Lease Act 29/1994, of 24 November, parties can agree the term of lease agreement.■ Break options: Either ‘Tenant Only’, ‘Landlord Only’ or ‘Mutual’ break options. ■ Frecuency of rent payable: rent payable monthly in advance. ■ Legal and rent deposit: The Spanish Urban Lease Act 29/1994 establishes a compulsory legal deposit of two months rent. Landlords have the obligation to deposit legal deposit in Public Housing Agencies which is held until lease expiry. Additionally, and if required by the landlord, tenant will need to provide additional security in the form of a deposit or bank guarantee of an agreed amount, typically six months rent. ■ Rental increases: Rent normally escalates annually to CPI with an open market review every 5 years. ■ Assignment & Sublease: Uncommon in the Spanish office market.■ Dilapidations: Tenant’s responsibility to leave premises in its original state.■ Early termination: Permitted following expiry of compulsory term and complying with the agreed prior notice.■ Right of first refusal: not common.

Letting / Releted Costs■ Agency fee: 12-15% of the annual rent for new lease/relocation.■ Renewal: tenant would typically pay a percentage of saving over lease period.■ Tenant’s fit-out: cost usually assumed by tenant and supervised by landlord.■ Legal Fee: Each side bears its own legal costs.■ Property Tax: cost borne by the landlord, but usually passed included in service charge and passed on to tenant. Amount varies according to area (roughly 0.4% to 1.1%).■ Waste Management and Disposal Tax: Calculated upon the area leased and payable by tenant.

Bank - Finances

■ District: CBD■ Location: AZCA■ Property type: Multi Tenant■ Size: 250■ Employees: 6■ Parking spaces: 5■ Lease: 3 -2 years■ Agent fee: 15%■ Rent free: 5 months

Annual letting cost Year 1

Agency fee €15,470

Fit out €110,498

Rent free -€14,324

Rent €103,131

Service charges €16,200

Parking spaces €9,000

Land tax €5,900

TOTAL €245,874€663 per sq m €27,155 per employee

IT Company

Real Estate / Construction

■ District: North Area■ Location: Manoteras■ Property type: Multi Tenant■ Size: 3,900 sq m■ Employee: 327■ Parking spaces: 80■ Lease: 6 years■ Agent fee: 12%■ Rent free: 12 months

■ District: North Area■ Location: Pinar de Chamartín■ Property type: Multi Tenant■ Size: 2,300 sq m■ Employee: 188■ Parking spaces: 62■ Lease: 2 years■ Agent fee: 15%■ Rent free: 1 month

€169 per sq m €1,996 per employee

€379 per sq m €5,043 per employee



Fit out €1,039,886


Rent €311,966



Land tax €36,974

TOTAL €1,542,750



Fit out €874,552


Rent €307,343



Land tax €28,485

TOTAL €1,407,415

2014



Savills Madrid - OfficesPlease contact us for further information

Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a companythat leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East.

This bulletin is for general informative purposes only. Savills accepts no liability whatsover for any direct or consequential loss arising from its use. It is strictly copyright and reproductionof the whole or part of it in any form is prohibited without permission from Savills Research. © Savills Commercial Ltd

Rafael MerryManaging Director+34 91 310 10 [email protected]

José NavarroDeputy Managing Director+34 91 310 10 [email protected]

Luis EspadasCapital Markets+34 91 310 10 [email protected]

Gema de la FuenteResearch+34 91 310 10 [email protected]

Isabel AbellaResearch+34 91 310 10 [email protected]

Jesús MateoValuation and Consultancy+34 91 310 10 [email protected]

Alberto PellejerProperty Managment+34 91 310 10 [email protected]

Research

Table source: Savills

TABLE 2

Key letting indicators

Office submarkets

Take-up in sq mAchievable prime rent in sq m/month

Exclusive office use buildingsWeighted average rent in sq m/month

Exclusive office use buildings

20145-year

average6-month forecast

20145-year

average6-month forecast

20145-year

average6-month forecasts

CBD 40,726 35,690 k €25.00 €25.90 k €20.90 €23.60 kUrban area 137,216 112,111 k €17.25 €18.90 k €17.20 €21.10 g

Inner suburbs 107,653 122,389 g €14.00 €15.30 g €11.90 €18.20 mOuter suburbs 63,376 82,274 m €9.50 €10.80 g €9.30 €11.50 m

Ana ZavalaOffice Agency Spain+34 91 310 10 [email protected]

Pablo PavíaInvestment Spain+34 91 310 10 [email protected]

European Real Estate Guide Madrid Offices · Assestment Methology) is the world's foremost environmental assessment method and rating system for buildings. ... Savills is a leading

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