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Madrid : Core tightens, but room to grow elsewhere

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Madrid is currently an attractive option for tenants:

1) The overall vacancy rate stood at 10.3% at the end of Q1 2017 with the CBD vacancy at 9.4% (up from 8.3% in Q4 2016). This translates into 3.3 years of supply across the whole market and two years in the CBD. The vacancy will be maintained at this level over the course of this year;

2) For occupiers looking to relocate post Brexit, Madrid is one of the most affordable cities in Europe in which to accommodate staff - live/work accommodation costs per employee are €31,488; 63% lower than London and 56% below Paris;

3) GDP is set to grow on average 2.3% pa during 2017-21. The Information, Communication & Tech sector is expected to grow by 3.6% pa while growth in Finance & Insurance will come in at 2.0% pa during the same period (Oxford Economics).

The unemployment rate currently stands at a relatively high level of 14.2% which offers occupiers a large pool of talent. However, the unemployment rate dropped significantly from the historic peak of 20.5% in Q4 2013. This is leading to increasing demand for office space, which in combination with limited speculative development in the CBD (at 48,000 sq m) will gradually lead to a lack of modern buildings. Prime CBD rents, which reached €342/sq m pa at the end of Q1 2017, are expected to rise by 3.5% this year and 6.1% in 2018. This suggests a gradual move towards a landlord favourable market in the CBD over the next two years. Occupiers will be able to find more space outside the CBD - 200,000 sq m of speculative space is expected to be delivered in 2017-18. Combined with current availability, this translates into more than four years worth of supply. Rents in the periphery are expected to rise at a more modest pace than in the CBD.

Source : Savills

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