by Francis Pons
The Spanish economy has been growing steadily over the past few years: political stability, entry into the EC (full entry in 1992), the World Trade Centre or Expo ’92 in Seville and the Barcelona Olympic Games have made Spain’s economy the fastest growing in the EC. Inflation has been kept under 5% since 1986, although last year it was 6.9%. GDP growth is one of the higher in Europe.
All these changes in Spain’s economy have profoundly affected the real estate market. Today, all the major financial, economic and industrial institutions are present in Spain, the demand for offices is enormous and refurbishments are very scarce. As a result, there is a serious shortage of office space on the market, both to let and for sale.
We opened in Madrid in 1973 and since then have been witness to Spain’s dramatic changes — General Franco’s death on November 20 1975, the coronation of the King of Spain on November 22 1975, the dramatic social and economic changes which have occurred in our 17 years of practice.
The crucial date for the expansion of the real estate market was May 9 1985 when the government approved the Bill popularly known as the Decreto Boyer. Under this Bill, security of tenure for tenants was reduced; previously, tenants would sign a six-month to one-year lease subject to annual indexation. They could occupy the accommodation for as long as they wished after the expiry of the lease term, but subject to the conditions stipulated in the original lease. Therefore, landlords firstly had no legal right to obtain vacant possession of the premises and, more important, no certainty of doing so. To obtain vacant possession, where possible, was generally costly.
Since then, the pattern of office developments and investments in Madrid has changed drastically. It has allowed landlords to introduce open market rent reviews, widely used in Britain, into the Spanish market. In December 1989, office accommodation in Madrid was distributed as follows:
There is an unsatisfied demand of 200,000 m2 of offices, with rents in Madrid reaching Ptas 5,000 per m2 per month and yields firming to 5% along the prime areas of the Paseo de la Castellana. In Barcelona, the same process has occurred, bringing yields down to 6% and rents up to Ptas 3,500 per m2 per month along the Paseo de Gracia-Diagonal area. All this has transformed the market into what is, at present, a very favourable one to the landlord. Tenants will find none of the enticements to lease now common in the UK.
Another of the changes is the appearance of a two-tier market, with a viable alternative office market on the peripheries to the north-east of Madrid and Barcelona. Along with this we are experiencing the, as yet, untested idea of various business park developments in the market (Las Rozas, Parque de las Naciones and La Moraleja in Madrid).
Until now office specifications in Spain did not resemble those of northern Europe; this has also changed and the latest office buildings in Madrid have been constructed with all the international requirements expected of a mainstream European city. The intelligent building idea is now very much a part of developers’ strategies (Torre Picasso, IBM building).
Since 1985 we have seen a marked increase in international property players searching for and acquiring property developments and investments in Spain. The office markets of Madrid and Barcelona are characterised by a strong demand for investment and development opportunities with little supply. Only some 15 transactions took place in Madrid and Barcelona last year.
The days in which local runners dashed from one investor to another offering deals that did not exist and caring only for their commission are well past. Today, most of the major chartered surveyors have established themselves in Madrid and Barcelona, and it is possible to tackle real estate deals with professional guidance from international property consultants who will impart expert knowledge of market rents, prices and yields, as well as advise on the more recent trends in the market.
This does not necessarily secure a smooth ride into the market, but it does give a comprehensive outlook and an easier ride in which you can be sure of being treated by professionals with the same approach to property transactions as that experienced in Great Britain.
The property markets in Madrid and Barcelona are still the two more promising ones in Europe. General practice property consultants are adjusting to the market as it becomes more sophisticated to meet their clients’ requirements. However, much needs to be done to find a universal method of dealing with property — to give the client professional, reliable sound advice.
