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Madrid Real Estate Market: 2nd Semester 2012

07/08/2012
Arancha Cajigas Investment Advisor

Summary

1. OFFICES ............................................................................................................................. 3 2. INDUSTRIAL / SPACE........................................................................................................ 6 3. LOGISTICS ......................................................................................................................... 9 4. RETAIL .............................................................................................................................. 13

Madrid Real Estate Market: 2nd Semester 2012

1. OFFICES
1.1 AREAS

Madrid Real Estate Market: 2nd Semester 2012

1.2 PRICES PER AREA

Source: Jones Lang Lasalle

1.3 STOCK & VACANCY RATE

Source: Jones Lang Lasalle

Madrid Real Estate Market: 2nd Semester 2012

1.4 SUPPLY
The overall vacancy rate continues to be in the region of 11.2%. The vacancy rate has only increased by 0.85%, but several large tenants, like Repsol, are soon to vacate their current head offices, which are mainly located in the Secondary area. The majority of office project completions until the end of 2012 will take place in the Periphery, with 56% of the total, so a hike in vacancy rates is also expected in this area between now and the year-end. The gap between supply and demand is still very wide, since prices have not fully adjusted and owners are not prepared to accept significant discounts. As a result, there is still a lack of attractive investment products for those investors currently active in the market. Banks are starting to bring commercial properties to the market, although these assets are still overvalued

1.5 DEMAND
The number of transactions has gradually decreased, from 110 in the last quarter of 2011 to 78 at the end of the second quarter of 2012. However, the average transaction size has risen slightly as a result of a modest increase in the average size of deals involving floor spaces of more than 1,000 m, due to the only transaction of over 5,000 m by Adequa. Private investors remain active and continue to look for opportunities deemed defensive owing to the security of their rents, i.e. prime assets with quality tenants, with investors requiring longer lease terms as we move away from the CBD. A number of international investors are also interested in the Spanish market, although they seek price levels that could help to strike a balance between the current economic situation and the ensuing demand for high returns. Within this group of investors, opportunistic funds, although active, are still not finding a market that suits their investment criteria.

1.6 RENTS
Rental levels have only been stable in the Secondary area, although this could change in the coming quarters as new companies decide to vacate their offices. In the other areas, maximum rental levels continue to decline by approximately 2%. The prevailing trend remains the search for optimal lease conditions through renegotiations or moves to better buildings with very competitive prices. Minimum rental levels have dropped by 4% in the Periphery due to intense competitive pressures in this area.
Source: Jones Lang LaSalle.

Madrid Real Estate Market: 2nd Semester 2012

2. INDUSTRIAL / SPACE

3rd Ring Henares Corridor 2nd Ring

1st Ring

South Corridor

Madrid Real Estate Market: 2nd Semester 2012

2.1 SUPPLY
Development of speculative industrial and logistics projects will be non-existent. Developers who may be in a position to operate show no interest in the development of new projects due to the current level of available stock. New developments undertaken will, in any event, be turnkey projects with a closed lease or sale contract.

2.2DEMAND
The economic context, characterised by low levels of consumption on the part of both individuals and companies, continues to discourage any thought of a clear resurgence of demand for industrial or logistics floor space. As in previous years, greater activity will be determined by the relocation of companies seeking to take advantage of the fall in rents to relocate to a better property at a lower cost, or by manufacturers and distributors outsourcing to specialised logistics companies in order to reduce costs.

Scarcity of purchase transactions on the part of users. The economic context, affecting primarily small and medium-sized businesses (the principal seekers of sales transactions), the exit of private equity investors from the market due to the existing level of risk and the difficulties of obtaining financing in the market are obstructing these types of transactions which have traditionally focused on mini-units.

2.3 PRICES/RENTAL
The significant level of availability, highly concentrated within the third ring, will continue to exert downward pressure on rents during the coming year, although these falls will become increasingly more subtle. No further falls are envisaged within the markets of the first ring closest to the built-up areas of Madrid . Were any reduction to appear, it would not prove significant. Furthermore, negotiating margins will continue to be very wide, both in terms of average rents and sale prices, thus leading to lower closing prices.

Madrid Real Estate Market: 2nd Semester 2012

Logistic prices vs Industrial prices 2011

Industrial

Logistic

CBD Source: Aguirre Newman.

1Ring

2 Ring 3Ring

Madrid Real Estate Market: 2nd Semester 2012

3. LOGISTICS

3.1 SUPPLY
Analyzing the supply of units according to thoroughfare, the largest volume of vacant floor space is to be found within the areas of influence of the A-2, the A-4 and the A-42. The vacancy rate in the Henares Corridor stands at 13.2%. The most modern, international standard products on offer are to be found in the areas of San Fernando de Henares (Ring 1), Alcala de Henares (Ring 2) and Cabanillas del Campo (Ring 3). Vacant units along the A-3 amount to 84,000 m2, represent a vacancy rate of 33%. The most modern available units are situated within the surroundings of Rivas-Vaciamadrid (Ring 2). The vacancy rate along the A-4 stands at 20.8% and the better quality units are found in Getafe (Ring 1) and Ciempozuelos (Ring 3). Availability is limited in the areas of the A-1, A-5 and A-6 and there is currently no spare capacity to house logistics activities. The outlook for the rest of 2012 and H1 2013 indicates relative stability in terms of supply. With developer activity at a standstill, the volume of floor space transacted will tend to stabilize due to the freeing up of second-hand space (regrouping strategies). Nevertheless, the scarcity of modern products in some areas will become apparent, driving up rents and, as a consequence, encouraging the activities of developers. This, however, will not take place until 2014.

Madrid Real Estate Market: 2nd Semester 2012

3.2 DEMAND
In terms of the analysis by rings, the 3rd saw the greatest area of floor space transacted (47%), followed by Ring 1 (31.3%). Ring 2 took a share of 17% (all situated around the A-2) and scarcely 15,000 m2 were transacted in Ring 4, amounting to a market share of only 4%. The reason is that operators traditionally from Ring 4 have moved into Ring 3, and those of the 2nd Ring into the 1st, taking advantage of offers to be more centrally located. The first quarter of 2012 has seen a slowdown in comparison with the same period in 2011. This drop in activity is explained by the cautiousness of operators and final users of logistics, faced with poor levels of economic performance and, so far, low impact of structural reforms. Take-up in Madrid was 42,000 m2, representing a reduction of 47% compared with the same period in 2011. The remainder of 2012 will continue to mirror trends in private sector consumption, both in terms of the number of deals and gross take-up. In addition, the demand for extensive floor areas will be lower than that for last year, leading to a foreseeable reduction in take-up by the year end.

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Madrid Real Estate Market: 2nd Semester 2012

3.3 PRICES/RENTAL
The units closest to the capital (Ring 1) saw a reduction in average rent of 11%, whilst the more peripheral rings (3 and 4) fell by 20%.The difference in reductions illustrates the greater efforts which landlords must make with units located in the zones furthest from the centre. Units along the A-2 produced an average rent of 4.00/m2/month with minimums of around 1.75/m2/month and maximums of 6.00/ m2/month. The area of influence of the A-4 recorded an average rent of 3.80/m2/month (4.00/m2/month in 2010), within a range of 1.30 to 5.00/m2/month.

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Madrid Real Estate Market: 2nd Semester 2012

Incentives for transactions have remained in place since the beginning of the crisis and many new tenants are able to enjoy free rent periods, staggered rents and costs not charged to rental. These vary according to the negotiating capacity of the parties, though increase in line with the size of the deal and for locations which prove difficult to lease. The consumption pattern anticipated for the remainder of 2012 augurs stability in rents for prime locations and reductions on units which are of lower quality and have a poorer location. The phase of rent reductions for logistics units will come to an end at the beginning of 2013, in line with better output figures for Spain
Source: BNP Paribas

/sqm/month A-1 A-2 A-3 A-4 A-42 A-5


Source: BNP Paribas

Ring 1 4/6 3,8/6 4/6 3,50/5 3,70/5 4/5

Ring 2 3/5 2,25/5 3,50/5 3/4 3/4 3/4

Ring 3 3/4 1,8/3,4 2/3 1,8/3,2 1,8/3,2 1,8/3

Ring 4 2/3 1,35/3 1,50/2,5 1,50/2,5 1,5/02,50 1,5/2,5

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Madrid Real Estate Market: 2nd Semester 2012

4. RETAIL
SERRANO
Serrano, one of Madrids high-end shopping streets, has witnesses a change in its business makeup over the last few years. Remodeling projects have helped Serrano establish itself as an emblematic enclave, and as a result, major national and international fashion companies have chosen to open their flagship stores there.

The section of Calle Serrano analyzed in this study is located between Calle Jos Ortega y Gasset and Plaza de la Independencia. There are a total of 147 businesses in this section.

There are currently some empty stores, though this is due primarily to remodeling projects in some buildings and unfinished projects in others. The vacancy rate stands at 6%; however, real availability is somewhat less than this, since some projects are slotted to occupy some of this space in the future, so it cannot all be considered available at this time. In 2012, seven transactions were made, of which six were inaugurations; the seventh transaction was an expansion of a space that the company was already occupying. It is worth noting that, unlike the moves that took place last year, 100% of this years new openings are international companies. Among the most distinguished new players are Michael Kors, Ferrari and Zadig&Voltaire.

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Madrid Real Estate Market: 2nd Semester 2012

GRAN VIA
The search for a large building, full of history and architectural intrigue, would end at Gran Via, the most emblematic street in Madrid. The majesty of its buildings and its central location have caught the interest of many different types of businesses, which wish to open stores there. The high concentration of cinemas and theatres has made it one of the citys most frequented streets, and the broad range of cultural activities and entertainment options it offers, which attract people of all ages, make it the busiest street in the city, every day of the year. The section analyzed for this report is located between Montera and Fuencarral up to Callao square. There are a total of 46 businesses in this section.

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Madrid Real Estate Market: 2nd Semester 2012

The current occupancy rate is 100%, demonstrating that the demand shown by companies outweighs the store space available, which has contributed to stable rent prices and an insistence on key money to secure a place on this street. Because this is an extremely consolidated retail street, very few transactions take place each year. Although the majority of the stores located on this street are Spanish-owned, international brands have been taking a greater stake over the last few years and, as on Serrano, the international companies vying to make a place for themselves on this street tend to outnumber Spanish companies.

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Madrid Real Estate Market: 2nd Semester 2012

This summary has been prepared making every effort to ensure the accuracy of its contents, but it is not to be taken as either legal advice of any kind or any other type of consultancy regarding any particular matter, therefore its content is meant for information purposes only, and thus PromoMadrid accepts no responsibility or obligation for any errors or omission in the information hereby presented. Furthermore, procedures and formalities referred to herewith may change over time, and therefore the assumption that they will be valid subsequent to the date of preparation of this summary cannot be made.

PromoMadrid explicitly declines any responsibility concerning any actions carried out by an individual based on the information provided in the present summary, and will not be liable for any claim, loss or damage that may result from the use of this information

PromoMadrid Desarrollo Internacional de Madrid S.A. Arancha Cajigas arancha.cajigas@promomadrid.com C/ Suero de Quiones 34, 28002 Madrid Tel 34 917 450 127 Fax 34 914 110 913 www.promomadrid.com

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