The Madrid office market ended 2021 with close to €680m in investment transacted, down 52% on the previous year’s figure, although it should be noted that close to 50% of the total was concentrated in five megadeals (≥€100m).

The main reason for the significant drop was the shortage of available product to meet the expectations of demand, which favoured the search for off-market assets, accounting for 61% of the total transacted. This demonstrates the high level of interest in Madrid. However, it should be noted that, of the assets mandated, several had been available on the market for more than a year.

Investment activity increased steadily during the year, from €80m across four deals in Q1 to € 270m and 12 deals in Q4. The average price remained at around €20m.

Despite the uninterrupted increase, the weight of Madrid in the national total barely reached 27%, which contrasts with 67% in the last ten years and 69% in the historical series.

The largest transaction (>€50m) took place in Q4. The French asset management company Ardian took over the former Cetelem headquarters in the Méndez Álvaro submarket. This is a privileged location, with maximum visibility from the M-30, in a highly consolidated environment where important developments will be incorporated in the coming years. The immediate future of the property is to undergo a comprehensive refurbishment to adapt the building (constructed in the early 90s) to the needs of current demand.

The M-30 continues to be a psychological barrier. The general interest of investors is concentrated within the M-30, although there are attractive opportunities in peripheral markets. In this regard, MadBit remains on the investment radar of both national and international companies, which continue to be committed to the capital’s so-called technology district. During 2021, four transactions were registered in this submarket (all off market), three of which took place in Q4, totalling around €62m, accounting for 20% of the total amount transacted outside the M-30.

Within the context of uncertainty, risk aversion is clearly reflected by investors’ commitment to core and core+ products, which accounted for 70% of the annual volume. Value added activity was mainly located within the central hub, but it is also worth noting the signing of some assets in locations with very solid fundamentals, including MadBit, as well as a building in the outer periphery of the A1 in a portfolio mainly comprised of logistics products.

The competitive advantage of national investors is their great knowledge of the office business in the capital, also evidenced by the share of their acquisitions in the off-market (>60% both in volume and transactions). When comparing mandated and offmarket products, the difference between international transactions is hardly representative (only 2% higher in onmarket assets). However, in domestic deals, off-market purchases (where they avoid the competition of mandated processes) exceeded mandated assets by 13%. It should be taken into account that more than 70% of core and core+ product was transacted off-market.

Yields

Yields remain stable. After the 15bps drop in Q2, Prime CBD continues to stand at 3.10% and Prime outside the M-30 at 4.60%. In any case, it should be noted that buying pressure could compress the yield of a certain product as long as it meets the criteria of location, quality of the property, solvent tenant and a long-term contract.