Office leasing in Madrid has proven more resilient than the European average. The Spanish capital closed the first quarter 5% above the five-year average absorption rate—its best start since 2020. This translates to over 130,000 square meters leased, a stark contrast to the nearly 14% decline in office take-up seen across Europe.
Among the top three cities, Madrid, Oslo, and Prague were the only markets to record growth in leasing activity, as opposed to Dublin, Bucharest, and Lisbon, where take-up fell sharply by more than 50%.
Madrid’s growth, coupled with the absence of large-scale deals, reflects a healthy and stable office market. In this context, higher education has been a decisive factor in boosting demand. Camilo José Cela University and Universidad Europea de Madrid signed the most relevant transactions of the quarter, reinforcing a trend already observed in 2022, when universities also played a leading role in the market.
Betting on prime
The lack of quality office stock across Europe continues to hinder supply. Investment is increasingly focused on new, high-performance spaces located in prime areas, which heavily influence the decisions of both buyers and occupiers. Secondary zones are being progressively ruled out as operational bases. In Madrid, 47.5% of total take-up in 2022 occurred in more sustainable, better-equipped, and better-located assets, a trend that remained strong in Q1 2023, with 31% of leases concentrated in such properties.
Furthermore, vacancy rates in secondary office areas are driving the shift toward alternative uses such as education or residential. In Madrid, vacancy in these areas stands at 15%, nearly double that of prime zones. The demand for offices in well-connected prime locations with attractive surroundings has become a steady trend since the pandemic and the rise of remote work. As a result, repurposing offices in secondary areas into coliving spaces, student residences, or healthcare and educational facilities is gaining increasing importance in the real estate market.
This phenomenon goes beyond Madrid and opens Pandora’s box for the rehabilitation of obsolete assets. Currently, 40% of Madrid’s office stock holds some form of ESG-related certification, which can increase asset value by up to 15%. However, this represents a significant challenge for the future of the real estate sector, as sustainable offices still only make up around 22% of the global stock on average.
