The Office Handbook - Deloitte...@ 2017 Deloite Financial Advisory 2 of 15 The Office Handbook Spain 2017 Javier García-Mateo, MRICS Partner Financial Advisory ‖Real Estate [email protected]

@ 2017 Deloite Financial Advisory1 of 15

The Office HandbookInvestment & Financing Keys

Spain 2017

Financial Advisory I Real Estate

February 2017


The Office HandbookSpain 2017

Javier García-Mateo, MRICS

PartnerFinancial Advisory ‖ Real Estate

[email protected]: +34 659 90 02 15


► Vacancy Rate in Madrid (11%) and Barcelona (10%) slightly decreasing.

► New Supply continues to increase. 155,000 sqm recently refurbished delivered in 2016 in Madrid and Barcelona

► Take-Up in Madrid and Barcelona decreased by 13% and 25%, due to the lack of large letting deals. Nowadays, most offices buildings aim to become a Grade A to compete at a higher rent.

i. Impressive building design.

ii. Connection to the user and deep

understanding of the millennial way of work.

iii. Becoming a green and technological building.

► Prime Rent are experiencing a positive trend due to the favourable macro-economic conditions.

► GDP growth: +3.3% 2016 (+2.5% 2017 F)

► Unemployment rate (2016) decreasing by 9.7% (CAGR) since 2013.

► Exports growth: +4.5%

► Increase in Business Confidence Index: +6.6% (Q4 14 –Q4 16), but was stable in Q4 15/Q4 16 var.

► Creation of Companies Index: +1.5% in YoY Var.

► MAD & BCN are the most competitive cities in Europe as an alternative to London due to Brexit.

2Supply &

Demand

4Key Investment and Financing Drivers

3OfficeInvestment Market 5 Key

Factors


EXECUTIVE SUMMARY

Market Overview

1Consolidation of the recovery

► High Liquidity for both Equity and Lending due to the progressive entry of new players.

► Increasing lender appetite for technical Grade A buildings (LEED/BREAM

► Low yields sets a barrier for higher LTVs for senior loan facilities structures.

Full Due Diligence required to perform the optimal deal analysis:

► Financial Factors: Understanding of NOI vs GRI ► Business Performance: Analysis of income

sustainability analysis► Legal Factors: All intervenient contracts

analysis. Urban and legal risks analysis.► Tax Factors: Analysis of tax impact on results

analysis► Technical Factors: Identification of structural or

technical defects and compliance with regulations.(*) IMPORTANCE OF LEED/BREEAM CERTIFICATION.

2015 vs 2016

► EMEA region accounts for 35% of the total Office Investment volume. Spain accounts for 2% of this amount.

► In Spain, Office Investment volume in 2016 decreased by 8% (€4,895 M) and accounted for 40% of total non-residential investment.

► SOCIMIs (Spanish REITs) took part in 55% of total Office transactions in Spain during 2016

► Madrid leads Europe in Capital Value growth (20%). Barcelona grows by 13%.


Yie

ld T

rend(%

) 2015-2

016

4

Oferta y

demanda

Lecciones

aprendidas y

perspectivas

3 %8 %

4 %13 %

1%9 %

- %

2 %

20 %

6 %

12 %18 %

8 % 14 %

1.200

1.700

2.200

2.700

3.200

3.700

0

Lo

nd

on

Paris

Mu

nic

h

Barcelo

na

Fran

kfu

rt

Berli

n

Du

bli

n

Am

ste

rd

am

Mad

rid

Bru

sels

Vie

na

Mil

an

Lu

xem

bu

rg

o

Lis

bo

n

Min. 2007 Max. 2009 2015 2016

10 Year Bond

2015-2016(18th January

2016)1.39%▼36 bps

0.43%▼23bps

0.93%▼6 bps

0.32%▼15 bps

0.32%▼15 bps

0.32%▼15 bps

0.80%▼7 bps

1.32%▼38 bps

0.52%▼27 bps

1.91%▲35 bps

3.84%▲106 bps

0.66%▼18 bps

Source: Deloitte RE, Bloomberg

Lecciones aprendidas y perspectivas

12€

17€

22€

27€

n.a.

183 bpsDif. 10 years bond –

Yield 2015245 bps 333 bps 261 bps 388 bps 358 bps 332 bps 457 bps 236 bps 484 bps 348 bps 234 bps n.a. 141 bps

Capital Valu

es G

row

th (

%)

2015-2

016

Cap

ital V

alu

e

per e

ach

€1

of

ren

t

Commercial

Investment Europe and Spain

Supply

and

DemandCRE Market

Spain 2015

EXECUTIVE SUMMARY

Europe has experienced a global yield compression from

2015 and now, which has resulted in significant increases in Capital Values, apart from the effect that

other market factors could have had such as the trend in rent.

Drivers of the increase in cross-border

investment:

Accessibility to credit and more attractive financing conditions

2

3

1

4

Yielding Assets are more attractive than Investment Grade

Dollar strength (For American investors) and Euro weakness

Political and financial uncertainly in certain regions of Europe


Office Market: Capital Values and Trend Yield Analysis

1.39%▼36 bps

2%

3%

4%

5%

6%

7%

8%

Madrid & Barcelona outperform Europe


Brexit OpportunityFrom a cost perspective, Madrid and Barcelona are the most competitive cities despite the limited office space available.

Total Office Inventory vs Vacant Space at January 2017 (Mill. Sqm)

*Total costs calculated for a company occupying 3,000 sqm in CBD with the Minimum contract per city and considering 1 employee/10 sqm working 8

hours/day. Fit out Costs: Medium specification

MAD/BCN42 €m

FRANKFURT103 €m

PARIS207 €m

EXECUTIVE SUMMARY

Strong competence between cities in Europe to attract companies after the BrexitImpact. Madrid and

Barcelona, potential options.


Key Drivers for the alternative cities to London

after the potential impact of Brexit:

Office Inventory and the current vacant space available for companies

2

3

1

4

Rental Level and the affordability of spaces for potential companies

Total Costs for a company, including fit out costs and labor / wages costs

Quality of life and leisure opportunities for the employees

Source: Deloitte, Eurostat

13

6

12

53

48

1.4 0.6 1.0 3.7 2.2

0

10

20

30

40

50

60

Madrid Barcelona Frankfurt Paris London

Inventory (Mill. sqm) Vacant Space (Mill. Sqm)

Rent CBD

(€/sqm/month)

Labour & Wages

costs

(€/person/h)

Av. Fit out

Costs

(€/sqm)

Min. Contract

Duration

(years)

Total costs for a

company* (€m)

Madrid 29 21 693 3 42

Barcelona 21 21 693 3 41

Frankfurt 37 32 1,334 5 103

Paris 65 35 1,422 9 207 London 124 26 1,028 7 138


Poland1%Belgium

1%

Russia1%

Spain2%

Switzerland2%

Ireland3%

Netherlands3%

Sweden4%

Italy5%

Norway6%

France13%

Germany19%

United Kingdom38%

Poland

Belgium

Russia

Spain

Switzerland

Ireland

Netherlands

Sweden

Italy

Norway

France

Germany

United Kingdom

EXECUTIVE SUMMARY

2% of the Total Office Investmentof the analysed countries

Source: Deloitte


Cepsa Tower. 4 Towers area.

Cepsa Tower (Spain) with €490m of Investment

Volume, was the fourth largest transaction of 2016 in Europe.

European Investment Market

€1,000m

€730m €650m €490m

€220m

FranceGermanyUnited KingdomSpainItaly

VENDORNord Ovest

29,128 sqm

BUYERTrophy Assets

9 PLACE VENDÔME

Office

BUYERNorges Bank IM

VENDORSloane Cap. Part.

26,800 sqm

COMMERZBANK TOWER

Office

BUYERSamsung SRA

VENDORCommerzbank

52,700 sqm

CEPSA TOWER

Office

BUYERPontegadea

VENDORIPIC

56,250 sqm

PIAZZA EDISON

Office

CITYPOINT ROPEMAKER

ST

Office

BUYERBrookfield Office Pr.

VENDORReceiver - KPMG

65,587 sqm

Source: Deloitte


EXECUTIVE SUMMARY

Top 5 deals per country (UK, Germany, France, Italy and Spain)

amount to €3,360m (2016).

Top 5 Spanish Deals accounts for 15% of this investment volume.

European Yields (2016):

For more information see CHAPTER 4 (Key Investment and Financing Drivers)

in the full report.

CountryPrime Yield

2016

Minimumlast

10 years

France 3.25% 3.80%

Germany 3.65% 4.00%

UK 3.15% 3.75%

Belgium 5.50% 4.80%

Spain 3.75% 3.80%

Sweden 3.70% 4.25%

Italy 4.25% 4.50%

Source: Deloitte


Spain with €4,895m of office investment volume in 2016, is one of the most significant players in the European Market.

European Investment Market

# Country AssetGLA

(sqm)

Price

(€m)Buyer Vendor

1 France 9 place Vendôme 26.800 1.000 Norges Bank IM Sloane Capital Partners

2 Germany Commerzbank Tower 52.700 730 Samsung SRA Asset Management Commerzbank/CFB-Fonds 64/ 65

3 United Kingdom CityPoint, Ropemaker St 65.587 650 Brookfield Office Prop Receiver - KPMG

4 Spain Cepsa Tower 56.250 490 Pontegadea IPIC

5 France 65-67 avenue des Champs-Elysées 10.500 490 Middle-East investor Meyer Bergman & Thor Equities

6 United Kingdom Principal Place 55.740 443 ENPAM (Italy) Brookfield Property Part

7 United Kingdom The International Quarter 47.844 429 Deutsche Asset & Wealth Lend Lease

8 United Kingdom Aldgate Tower 30.193 402 China Life Insurance Co Aldgate Developments Ltd

9 Germany International Business Campus 84.000 400 GEG German Estate Group AG RFR Holding GmbH

10 Spain Adequa 100.000 380 Merlin Properties - SOCIMI Lone Star

11 Germany Zurich Zentrale Köln 60.000 350 Warburg HIH Invest Strabag Real Estate; ECE

12 United Kingdom Fore Street, 1 21.998 315 Kingboard (Hong Kong) Brookfield Office Prop

13 France CBX Tower 41.000 300 Tishman Speyer Properties France Dexia Crédit Local

14 Germany BayWa Hochhaus 54.000 280 WealthCap BayWa AG, Competo Capital

15 France 2-8 rue Ancelle 17.200 267 Amundi Uninail Rodamco

16 Germany Treptowers 3 90.000 230 Blackstone Real Estate Partners n.a.

17 Italy Piazza Edison 29.128 220 Fondo Italia Trophy Assets - Hines Fondo Core Nord Ovest - Ream SGR

18 Italy Via Monterosa 91 86.086 220 AXA Selectiv'Immo and AXA CoRE Partners Group

19 Italy Via Lorenteggio, Vodafone Village 61.857 200 Coima Res SIIQ Real Estate Center (Carminati Gr)

20 France 115-123 boulevard Montmartre 9.500 176 Korea Post Natixis

21 Spain Las Mercedes B.P. 80.000 140 GreenOak Standard Life Investments

22 Italy Piazza Cordusio 2 14.272 130 Bayerische Versorgungskammer Fondo Donatello - Comparto David

23 Spain Cuatrecasas HQ 15.094 124 Axiare Familia Reig

24 Spain Gas Natural HQ 32.000 120 IBA Capital Partners Gas Natural Fenosa

25 Italy Via della Chiusa 25.000 120 AXA Group Northstar

Source: Deloitte


1,460 1,056 544 807

2,520

5,313 4,895

644 687

365 867

2,297

1,894 3,769

1,467

591

571

751

2,242

1,263

660

150

279

88

120

596

674

820

750

576

519

607

897

2,702

2,155

4,470

3,189

2,087

3,151

8,552

11,845 12,298

-

2,000

4,000

6,000

8,000

10,000

12,000

2010 2011 2012 2013 2014 2015 2016

# ASSET PRICE (€m) GLA (sqm) ZONES

1 Cepsa Tower 490 56,250 CBD

2 Adequa 380 100,000 DEC

3 Las Mercedes B.P. 140 80,000 DEC

4 Cuatrecasas HQ 124 15,094 RBD

5 Gas Natural HQ 120 32,000 DEC

6 Alcalá 45 104 18,655 RBD

7 Gas Natural Portfolio 86.5 25,100 n.a.

8 Meridia Portfolio 66 40,000 n.a.

9 Castellana 55 60 10,667 CBD

10 Roca Junyent HQ 55 9,960 CBD

Short Term Medium Term Long Term TOTAL

68%€1,417m

31%

1%

EXECUTIVE SUMMARY

Top 10 Spanish deals:

Source: Deloitte

Source: Deloitte


Offices

Retail Shopping Centre

Retail High Street

Logistics

Hotels

The total investment volume was 4% higher in 2016 than the investment volume in 2015. Office typology investment decreased by 8% despite the strong macro-economic conditions. However the retail segment continues to improve.

Spanish Investment Market (CRE)

40%

60%

Office Segment

Rest of CRE

- 8%

Top 10 Spanish deals:

Total office investment volume in Spain at 2016: €4,895m

A total office pipeline investment volume of €1,417m is expected to be transacted in Spain

Source: Deloitte

Source: Deloitte


110

127

108

109

112

104

107

98

103

108

113

118

123

128

2014 2015 2016

108

109

103

105

100

104

105

100

98

100

102

104

106

108

110

112

2014 2015 2016

EXECUTIVE SUMMARY

Recovery of Business Confidence indicators is having a progressive impact on average rental prices in both Markets and areas.

Lease Market

As take-up slightly

decreased, vacant space reduced and as a

consequence, Rent has

increased during recent

years.

Average Rent Growth Madrid

Avera

ge R

ent

trend

IN

DEX

BA

SIS

10

0 (

20

14

)

vs

Avera

ge R

ent

trend

IN

DEX

BA

SIS

10

0 (

20

14

)

Average Rent Growth Barcelona

For more information see CHAPTER 2 (Supply & Demand) with the full rental market analysis based on Deloitte Database.


CBD

RBD

DEC

RC

OUT

CBD

RBD

RC

OUT

DEC

CBD

Central Business District

RBD RC DEC OUT

Rest of Business District Rest of City Decentralized Out of the city

CONSUMER

CONFIDENCE

INDEX 94.9 points

(base 100)

UNEMPLOYMENT

RATEDecreasing ar CAGR of

9.7% since 2013

CREATION OF

COMPANIES

Q1 2017

aggregated

increase of 3,76%

compared

to Q12015

EXPORTSGrowth of 4.5% (2014 – 2015)

GDPGrowth of

3.3% in 2016

BUSINESS

CONFIDENCERecovery since

2013. Growth

of 31,4%

2013-2016

EXPENDITURERecovery of most

consumption groups

during 2013-2016

GROWTH

EFFORT RATESHousehold E.R. being reduced

Source: Deloitte


EXECUTIVE SUMMARY

The lease contracts have

responded positively to the market momentum, particularly in

CBD, where the vacant space in quality

buildings strongly decreased during the

recent years.

THE KEY FOR SUCCESS

Source: Deloitte


Source: Deloitte

Standard lease terms generally accepted

Average Rent Free Period (months)

2014 2015 2016Contract Duration (years)

Space leased by companies per employee(sqm/employee)

5(Break option 3rd Year)

(1)


(1)


(1)

Transfer of Property Tax and Community Charges to the tenant

80%

13-14(sqm/employee)

12(sqm/employee)

10(sqm/employee)

Average space leased by companies(sqm)

912 / 638 (sqm)(2)

919 / 748(sqm) (2)

853 /561 (sqm) (2)

4(months)

4(months)

2-3(months)

100% 100%

(1) Break option Year depending on the size of the company. For Companies >1,000 – 1,500 sqm, the regular mandatory period is 5 years.(2) Average Space leased by companies in MADRID / BARCELONA

Source: Deloitte

CONNECTION

TO THE END

USER

DESIGN

SUSTAINBILITY

CONNECTION

TO THE ASSET

MANAGEMENT

Main

Term

s


EXECUTIVE SUMMARY

Main

Conditio

ns

P&L reconstruction Restructuring of the Financial Sector

Fundamentals improvement

Alternative to the fixed income / bond yields

Development loans: Regular lenders are returning to

the market

Senior DebtYielding assets: 2016 more and

more competitive

MAIN DRIVERS FOR THE INCREASING LENDER APPETITE

Monetary Policy: QE, low funding costs, etc.

Excess of Liquidity: Increase in transactions

Entry of new sponsors

FINANCIAL SECTOR

REAL ESTATE INVESTMENT MARKET

MACROECONOMIC ENVIRONMENT

Yield assets: Improvement of the financing terms

Financing MarketThe Office HandbookSpain 2017

Source: Deloitte

(1) Balloon need to cover the high funding costs during the loan´s duration. (a smaller balloon will result in a larger annual debt service)(2) Sustainable LTV to face the debt service with high funding costs (A higher LTV will result in a larger debt service)

LTV

Upfront Fee

Spread

2014

<40%(1) 30%-40% 30%-50%

2015 2016

200-250pbs 150-200pbs 75-150pbs

250-300pbs 200-250pbs 150-200pbs

Framework

Main Players

Balloon 70%(2) 60% 80%-100%

Credit Access Constraints

Financing Upturn

Institutional Investors / Debt Funds

Banking / Assurance Companies

2013

30%-55%

50-100pbs

100-175pbs

80%-100%


EXECUTIVE SUMMARY

Most active players expected to stay active in

2016:

Main Players:

Equity

Debt

2015 2016

(€m) (€m)

CORE PROFILE STILL DOMINATES:

Source: Deloitte


Core 4.102

Core+ 149

Value Added 419

n.a. 225

Core 3.889

Core+ 355

Value Added 247

n.a. 822

Core

73%

Core+

7%

Value Added

5%

n.a.

15%

Core84%

Core+3%

ValueAdded

9%

n.a.5%

Source: Deloitte


WHAT IS

NEXT?



Source: Deloitte

EXECUTIVE SUMMARY

Source: Deloitte


Key for lease asset management: Data, Analytics and Planning

What is next? Innosys by Deloitte

innosys

Data

Analytics

Planning

Keys for asset management:

Solution developed by Deloitte for management real estate companies.

2

3

1

4

Goals: Planning, Analytics & Lease Management.

Lease Management: Landlord & IFRS16

More than 185 implementations at European level.

Innosys for lease asset management

Technology Microsoft, Arcplan, Esri, Leverton & Excel

Reporting / Analytics

Scenaries / Simulations


EXECUTIVE SUMMARY

Recovery of rental key indicators since 2013. It is expected to remain stable during

the next years given the slow

down of the macro-economic

conditions.

Key Office Market Indicators


10 of 134Source: Deloitte

Key Market Indicators: Historical Analysis – 10 year basis

Source: Deloitte

vs

MADRID

Key Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inventory (mill. Sqm) 9.94 11.22 11.55 11.92 12.21 12.38 12.63 12.69 12.73 12.83 12.93

Vacant Space (mill. Sqm) 0.50 0.58 0.81 1.11 1.29 1.41 1.58 1.80 1.70 1.51 1.39

Vacancy Rate (%) 5% 5% 7% 9% 11% 11% 13% 14% 13% 12% 11%

New Supply (sqm) 568,000 1,281,000 337,000 366,000 295,000 168,000 251,000 56,000 40,000 100,000 96,704

Rent in CBD (€/sqm/month) 29 36 39 31 27.5 26 23 23.5 24.5 26.5 29

Take-Up (sqm) 681,500 844,700 491,300 312,700 454,400 356,600 297,300 395,100 420,000 573,000 496,000

Yield CBD (%) 4.25% 5.00% 5.90% 5.80% 5.60% 5.65% 6.00% 5.75% 5.50% 4.25% 3.75%

Capital Value CBD (€/sqm) 8,188 8,640 7,932 6,414 5,893 5,522 4,600 4,904 5,345 7,482 9,280

BARCELONA

Key Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inventory (mill. Sqm) 4.85 4.97 5.34 5.58 5.76 5.83 5.86 5.92 5.88 5.89 5.94

Vacant Space (mill. Sqm) 0.27 0.29 0.41 0.63 0.81 0.81 0.83 0.89 0.83 0.67 0.59

Vacancy Rate (%) 6% 6% 8% 11% 14% 14% 14% 15% 14% 11% 10%

New Supply (sqm) 138,000 115,000 372,000 241,000 181,000 69,000 30,000 55,000 -35,000 5,000 58,000

Rent in CBD (€/sqm/month) 20 22 22 18 17.0 16 15 14.5 15.0 16.5 21

Take-Up (sqm) 386,800 358,200 349,800 202,200 237,500 267,500 204,600 197,600 217,000 420,600 315,000

Yield CBD (%) 4.50% 5.25% 6.00% 6.00% 5.80% 5.95% 6.25% 6.00% 5.75% 4.75% 4.00%

Capital Value CBD (€/sqm) 5,267 4,914 4,400 3,600 3,517 3,176 2,832 2,900 3,130 4,168 6,300

SPAIN

Key Indicator 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Offices Investment Volume (mill. €) 3,818 5,879 4,289 1,013 1,460 1,056 544 807 2,520 5,313 4,895


Documents

The Office Handbook - Deloitte...@ 2017 Deloite Financial Advisory 2 of 15 The Office Handbook Spain 2017 Javier García-Mateo, MRICS Partner Financial Advisory ‖Real Estate [email protected]