According to the Forcadell 1S 2017 Office Market Report, the sector is going through a phase of stability, with a positive forecast for growth at least until 2019.The launch of new projects into the market will alleviate the rate of availability, which currently stands at 9,3%.
Take-up in the office market in Barcelona has reached 197.800 sqm, a more than 30% year-on-year increase. Space supply, however, has continued dropping until reaching 9,3% in the 1st semester 2017.
In 1S 2017, Barcelona’s office market registered a take-up of 197.800 sqm, a 33,6% year-on-year increase respect the same period in the previous year. FORCADELL experts assess this very positively, since compared to data for 2013, the figure for this 1S represents more than the total annual amount reached in 2013 (191.750 sqm).Since 2015, office take-up has been increasing and is currently experiencing a healthy phase, with a tendency towards stabilisation. Notwithstanding that supply has continued to dwindle due to a shortage of square meters, forecasts point out that this is the outcome the market will be following at least until 2019, and it is expected that at the closing of 2017, take-up in the office sector in Barcelona will largely exceed the 303.000 sqm mark of 2016.
Availability of sqm continued its gradual fall due to an increasing take-up volume and a good level of absorption, while awaiting the market launch of new development products in the 22@area mainly. Some of these projects have been pre-committed by occupiers even before this market launch. Barcelona has almost all of its office spaces occupied and cannot absorb its current volume demand. In Prime, supply is barely at 2%, while in the city as a whole this rate has gone from 10% in 2S 2016 to 9, 3%.
The estimate for the total of available office sqm in Barcelona is scarcely over 500.000 sqm, clearly insufficient for the current demand of companies. The levels of large transactions were also optimal, registering 12 operations in the first semester, while the forecasts for the H2 expect the volume to be higher than in the H1.
In the first semester, the most demanded Zones in sales and rental have been Centre, New Business Districts and Periphery, highlighting also the interest for the sub-zones of 22@, Front Marítim, Vila Olímpica and Plaça Europa. With respect to space, the Tech sector and professional service firms have originated the most of the demand for spaces up to 500 sqm. Currently it is practically impossible to find spaces of over 1000 sqm in Prime or Business Districts Zone. Even though in the 22@ area and Plaça Europa there are still square meters to respond to this demand, these areas are starting to face a reduction in the volume of availability.
Office spaces of less than 500 sqm are scarce in Barcelona, and rarely enter the market. International demand is expected to raise due to the specific features of the catalan capital. Furthermore, it is important to point out that if the EMA (European Medicines Agency) finally does relocate to Barcelona, it will involve an increase in demand from government agencies and private entities as well.
Space availability in single owner buildings will continue to fall unless new projects are introduced in the market to meet the heightened occupier demand.Net absorption keeps a positive rate, as seen in 2016, consequently companies who are looking to establish themselves in Barcelona find limited options to their requirements. The 22@ district and Plaça Europa (NewBusiness Districts) are the main areas where it is still possible to find suitable space to buy or rent. Even in a periphery area like Sant Cugat there are few square meters left due to the surge in take-up seen in the past months.
The region of Baix Llobregat, immediately neighboring the city of Barcelona, has plenty of available square meters, therefore it is expected demand will eventually transfer into this area. Forcadell experts consider that, due to the rising volume of demand for spaces of less than 500 sqm, it would be interesting to opt for new construction projects built with smaller spaces.
Office rental prices continue their tendency towards stabilisation, with slight increases in every Zone as seen past semesters. In Prime, the average rent price has risen from €17/sqm/month (1S 2016) to €18/sqm/month in 1S 2017, a 5, 8% y/y increase. In the Centre Zone, the rise registered has been of 9, 09% respect the same period in the previous year, together with a 12% increase in the New Business Zone. The average rent in the city of Barcelona has increased 8, 06% respect June 2016. Office space is experiencing a dearth of supply, which in turn is driving an increase in rent prices, mainly in the first Lines.
Sale prices have also registered mild increases ever since the market started overcoming the crisis suffered 5 years ago. It is expected the upward trend in rents will drive inevitably to an increase in sale prices. In Prime, the average price is €5.500/sqm, a 10% increase respect the same period in the previous year. Business Zone, Centre Zone and New District Zone remain almost invariable while Periphery has increased 7,14% and the average of the city of Barcelona has seen a 5,04% y/y increase.
International investment remains as the main drive of national investment, which is expected to reactivate throughout 2017.When rent prices in Prime locations start increasing, yields become more attractive for investment. In 2016, total office investment in Spain exceeded €2.800m, and already in the 1Q 2017 the figure reached the €900 mark, €500m of which were invested in Barcelona. With these figures, Barcelona surpasses Madrid for the first time, based on the €142m acquisition of Torre Glories by Merlin Properties earlier this year. The shortage of available property on market for investors is counterbalanced by off-market deals that fit a diversified criteria of different investors.
Barcelona will continue experiencing an insufficient supply of office buildings in the medium to long term due to the slow introduction of property in the market compared to the current demand. Forecasts predict an increase of pre-let agreements in large spaces located in the 22@ district (New Business Districts) in addition to a slight increase in rent prices. Despite this particular situation, the Barcelona market is expected to maintain the interest of investors throughout the coming years.
In the office investment market, REITs and international funds have strengthened their position as the main actors. Some of these groups have opted to stabilise in this tertiary segment for its positive dynamic, and the forecast of growth possibilities of this market. Family Offices and small investors have been forced to change sector and type of property due to the fact they are unable to compete with large players.