8/12/2019 Spain Off 1q14

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OVERVIEWFurther improvements have been noted inthe Spanish economy, building on therecovery that began in the summer of 2013and with 2014 growth expected to be0.8%. Growth is driven mainly by exports,

which have benefitted from Spains rising competitiveness andimproved demand from its main trading partners. Domesticdemand is also expected to make a modest contribution togrowth this year after being a drag in 2013.

OCCUPIER FOCUSGross take-up in Madrid and Barcelona reached a total of167,000 sq.m in Q1. In Madrid the CBD market is the mostpopular, accounting for 46% of Q1 activity, while in Barcelona theperiphery was the most sought after location with its ability tooffers larger, modern floorplates. New leases, in both key cities,are driving activity but this is largely linked to occupiersconsolidating their businesses and driving through costefficiencies and/or upgrading to better quality space withoutincreasing their balance sheets. Expansion driven take-up islimited and it will be some time before this is seen in earnest.

Rents held firm across the board in Barcelona, while a marginaluplift of 2% was seen in Madrids CBD as quality stock falls anddemand increases. However, vacancy was largely stable, albeit atrelatively high levels, as net absorption is low and there is a churnin the market with newer stock taken-up at the expense of olderstock which is being released. Over time the overhang of spaceshould be eroded as there is no speculative space currently underconstruction.

INVESTMENT FOCUS Just over 200 million was transacted in Q1 in the Spanish officemarket and there are solid indications that the recovery is notmerely perception, but that the market has turned a corner andis indeed more of a reality now. There are many investors withan eye on the Spanish market, attracted by macro-economicstability and the prospects for improvements in the sector overthe coming years. The largest deal was the 117 million Avenidade Amrica, 115 which was bought by London RegionalProperties from Spains Banco Sabadell.

OUTLOOK2014 has seen the Spanish economy move into more solidpositive territory. Further acceleration of growth is notanticipated to take hold until 2015. However, with sentimentmuch more positive an improvement in the real estate sectorshould follow. Investment activity should pick-up in anticipation ina strengthening of the occupational market, led by Madrid.

MARKET OUTLOOKPrime Rents: Overall prime rents are stable, but for pockets

of rental growth emerging for quality space. Prime Yields: Rising investor interest and higher volumes will

see yields come under downward pressure.Supply: The amount of quality supply decreases, but

this is at the expense of older stock.Demand: Demand should persist for prime, well-located

spaces, putting secondary markets in jeopardy.

PRIME OFFICE RENTS MARCH 2014MARKET (SUBMARKET) US$ GROWTSQ.M/MTH SQ.M/YR SQ.FT/YR 1YR 5YR

Madrid (CBD) 25.00 300 38.4 2.0 -6.0

Madrid (Decentralised) 15.50 186 23.8 0.0 -7.2Barcelona (CBD) 17.75 213 27.3 0.0 -5.5Barcelona (Decentralised) 13.75 165 21.1 0.0 -7.7

PRIME OFFICE YIELDS MARCH 2014MARKET (SUBMARKET)(FIGURES ARE GROSS, %)

CURRENT LAST LAST 10 YEARQUARTER QUARTER YEAR HIGH L

Madrid (CBD) 5.75 5.75 6.00 6.00 3.50Madrid (Decentralised) 7.00 7.00 7.25 7.25 4.75

Barcelona (CBD) 6.00 6.25 6.25 6.25 4.00Barcelona (Decentralised) 7.50 7.75 7.75 7.75 4.75With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas ofEurope and the changing nature of the market and the costs implicit in any transaction, such as financing, these are verymuch a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be usedas a comparable for any particular property or transaction without regard to the specifics of the property.

RECENT PERFORMANCE

Source: Cushman & Wakefield

-10.0%

-5.0%

0.0%

5.0%

10.0%

4.00%

5.00%

6.00%

7.00%

8.00%

Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14

AVERAGE PRIME YIELDS (left) RENTAL GROWTH (right)

SPAIN

OFFICE SNAPSHOT MARKETBEAT

A Cushman & Wakefield Research Publication Q1 2014