In the ever-changing business landscape, the importance of adequate office space has never been more crucial. The office real estate market, often in the shadow of its residential counterparts, has become a central player in the evolution of modern business. Offices are no longer just workplaces, but also spaces for innovation, collaboration and representation of corporate culture.
This dynamic and constantly evolving market offers a range of opportunities that go far beyond real estate transactions. Here, in this in-depth exploration, we unravel the complexities and promise of the office real estate market. From highlights to key considerations, we will explore how this market has evolved and adapted to meet the changing needs of businesses and investors.
What is driving the demand for office space today? What are the features and services that define attractive commercial offices? What are the emerging trends that are shaping the market? All this and more will be examined in detail in the following sections.
Join us on this journey through the office real estate market, where we will unravel the opportunities and challenges that await those seeking their place in this exciting sector.
How has the pandemic affected the office real estate market in Madrid?
The supply of office space in Madrid has undergone significant changes due to the impact of the COVID-19 pandemic on the labour market and occupier preferences.
Prior to the health crisis, Madrid was one of the most dynamic and attractive cities for the office sector, with high demand, low availability and rising prices. According to CBRE, the total office stock in Madrid was 13.1 million square metres at the end of 2019, with an availability rate of 8.5% and an average rental price of €16.9 per square metre per month. Net office take-up reached 600,000 sq m in 2019, 10% higher than in 2018, driven by the technology, financial and professional sectors.
However, the pandemic has put a brake on the office market in Madrid, which has seen demand fall, supply increase and prices moderate. According to CBRE, the total office stock in Madrid remained stable at 13.1 million square metres at the end of 2020, but the vacancy rate rose to 10.6% and the average rental price fell to €16 per square metre per month. Net office take-up fell by 46% in 2020 compared to 2019, to 325,000 sq m, affected by uncertainty, restrictions and teleworking.
The pandemic has also led to changes in the preferences and needs of office occupiers, who are looking for spaces that are more flexible, secure, sustainable and adapted to the new hybrid work model. According to BNP Paribas Real Estate, 80% of companies plan to maintain or increase their office space after the pandemic, but 60% expect to change their layout and design. In addition, 70% say they will offer their employees the possibility of working from home or from flexible offices close to home.
These changes have favoured the rise of coworking as an alternative to traditional offices, offering greater flexibility, cost savings, innovation and collaboration. According to El Confidencial Digital, coworking has withstood the COVID-19 crisis better than conventional offices and is expected to grow by 20% in the coming years. Coworking currently represents 5% of the total office market in Madrid and has more than 200 operational centres.
In conclusion, the supply of office space in Madrid has undergone a transformation due to the pandemic, which has affected both the quantity and the quality and type of spaces in demand. The market is expected to recover gradually as the vaccination progresses and the economy recovers, but also to adapt to the new trends and demands of the labour market.
The current office real estate market in Madrid
The office real estate market in Madrid is one of the most dynamic and attractive in Spain and Europe, due to its size, diversity and growth potential. However, 2023 looks set to be a year of transition and recovery following the impact of the COVID-19 pandemic, which has affected demand, supply and prices in this sector.
According to data and reports from leading real estate consultancies, such as JLL, CBRE, BNP Paribas Real Estate and Knight Frank, the volume of investment in the purchase of office buildings in Madrid closed the first half of 2023 at €670 million, between 34% and 45% less than in the same period of 2022. Investors have been more cautious and selective when making transactions, prioritising prime, core plus and value add assets, with a good location, high quality and a high level of occupancy.
Net office take-up in Madrid also fell significantly in the first half of 2023, standing at around 200,000 sq m, 40% less than in the same period of 2022. Demand has been conditioned by economic uncertainty, health restrictions and the implementation of teleworking, which has reduced companies’ space requirements. The most active sectors have been education, technology and healthcare, while the most affected sectors have been finance, tourism and commerce.
The available supply of office space in Madrid has increased slightly in the first half of 2023, reaching 1.4 million square metres, which represents an availability rate of 10.7%. This increase is mainly due to the relocation or reduction of space of some companies, as well as the delay or cancellation of some new construction or refurbishment projects. Supply is mainly concentrated in the decentralised and peripheral areas, while the centre and the CBD (Central Business District) are short of available space.
Average office rental prices in Madrid have remained stable in the first half of 2023, standing at €16 per square metre per month. However, differences can be observed depending on the areas and types of buildings, being higher in the centre and the CBD, where they exceed 30 euros per square metre per month, and lower in peripheral areas, where they are around 10 euros per square metre per month. In addition, free rents and incentives to attract or retain tenants have been increased.
The outlook for the office real estate market in Madrid is positive for the second half of 2023 and for 2024, considering the improvement in the health situation thanks to the progress of vaccination, the economic reactivation driven by European funds and the adaptation of the sector to the new trends and demands of the labour market.
Investment is expected to recover progressively as uncertainty dissipates and deferred or pending transactions are reactivated. Demand for offices is expected to increase as face-to-face activity returns and expired or expiring contracts are renewed or extended.
Supply is expected to expand with the delivery of new build or refurbishment projects, which will add around 750,000 sq m to the existing stock. Prices are expected to remain stable or experience slight adjustments depending on the quality and location of the space.
In short, the office real estate market in Madrid is a sector with great potential and opportunities for all the agents involved, who will have to adapt to the new circumstances and take advantage of the competitive advantages offered by the Spanish capital.
The emergence of business centres to alleviate Madrid’s office problem
Finding an office in a perfect location, at a price that fits and with all your needs covered is impossible in Madrid. While offices in the city centre are extremely expensive, those on the outskirts of the M-40 are not as well connected or do not provide the cache that every company wants to have.
For this reason, the option of hiring a flexible office in a business centre is gaining more and more weight. These are an increasingly popular option for companies looking for an alternative to traditional office rentals. Business centres offer a series of advantages that make them more attractive and competitive, such as:
- Flexibility: Business centres allow space, time and cost to be adapted to the needs of each company, without having to make long-term commitments or initial investments. Business centres offer everything from private offices to coworking spaces, meeting rooms or training rooms, which can be hired by the hour, day, month or year.
- Services: The business centres have complete and modern equipment, including furniture, internet connection, air conditioning, cleaning, security, reception, telephone answering, messaging, etc. In addition, the business centres offer additional services such as consultancy, administration, secretarial services and catering, among others.
- Location: Business centres are usually located in strategic and well-connected areas of the cities, which facilitates access and mobility for clients and suppliers. Business centres are also usually close to hotels, restaurants, shops and other services that can be useful for business development.
- Image: Business centres project a professional and prestigious image of the companies that use them, which can enhance their reputation and market positioning. In addition, they are usually located in representative buildings with a neat and modern décor.
- Networking: These premises favour the creation of contact networks and the generation of synergies between the companies that share them.
In conclusion, business centres are an option to traditional office rental that offers multiple benefits for companies looking for flexibility, services, location, image and networking.
Conclusion
The office real estate market in Madrid in 2023 reflects a constantly changing landscape, driven by the adaptation to the changing needs of companies and the search for efficiency in the use of workspaces. In this context, business centres have proven to be an innovative response to the growing demand for flexible and affordable office space in the Spanish capital.
The ability of companies to rent flexible office space in Madrid has opened up new possibilities for business expansion and collaboration between companies from different sectors. The versatility of workspaces in business centres has allowed companies to adapt quickly to changes in their teams, sizes or business models, without the restrictions of long-term leases.
In the future, we are likely to see further consolidation of this trend in Madrid’s office real estate market. Business centres will continue to play a crucial role in offering flexible and attractive options for companies, promoting business agility and innovation in a constantly evolving business environment. As a result, the office market in Madrid in 2023 and beyond will be an example of continuous adaptation and responsiveness to the changing needs of companies in search of optimal workspace.
