Madrid: Europe's secret tech hub
Madrid: Europe's secret tech hub
Despite Spain’s reputation for bureaucracy, the country was home to 4,115 start-ups in 2018, a figure that is growing by more than 25% a year (source: Mobile World Capital, 2019). And while Madrid has come to the tech party late, it has learnt lessons from trailblazers such as London, Shenzhen and Denver. If Madrid can combine the best practice from these global tech hubs with its unique cost advantage and lifestyle, we think it could well become Europe’s next big innovation hub.
City focusing on entrepreneurship and real estate
Until recently, Madrid lacked a clear strategy for clustering innovative businesses, universities and capital providers, a formula pioneered by leading global cities such as London and San Francisco. However, following elections in June 2019, the city’s new deputy mayor plans to create a new innovation super-hub at ‘Mercado de Toledo’, promoting creative industries and establishing a public-private innovation agency. The hub will also promote initiatives around sustainability and the environment.
Madrid also now plans to build 10,500 new housing units as part of a €7.3 billion megaproject known as ‘Madrid Nuevo Norte’. The initiative, one of the biggest urban regeneration projects in Europe, will create more than 3.3 million square metres of commercial space and new green space in the city. The city believes it will create 240,000 new jobs over the next 25 years.
A more balanced economy
This bid to ignite growth may conjure up memories of Spain’s boom years before the global financial crisis. However, after trailing its neighbours in the post-crisis recovery, Spain now has more a more balanced economy and reduced levels of consumer debt. As neighbouring economies now reach full employment, Madrid has further to grow from its low base.
So, what does the city have to offer?
Local commentators have said that with less bureaucracy, the city can now showcase its advantages as a tech hub to “set up shop in”.
Madrid is a centrally located capital city with easy access to markets in Europe, Latin America and North Africa. It is already home to one of largest telcos in the world, Telefónica, alongside rapidly growing companies such as Google, Amazon and Cabify. Venture funding currently trails London and Paris, but a number of incubators and entrepreneurial networks are springing up.
Madrid offers high growth businesses a wide array of flexible workspaces. As the city is home to four major universities, there is also a pool of talented graduates ready to take up new job opportunities.
Footloose millennials will find Madrid’s cost of living 30% to 50% cheaper than London, Paris and Stockholm. With office rents and salaries at similar discounts, businesses also find it an appealing location.
Perhaps uniquely, Madrid’s lifestyle offers 290 days of sunshine a year, alongside an abundance of nightlife, culture and fine gastronomy, not to mention two leading football teams.
How will the city’s emerging status as a tech hub benefit investors in real estate?
New businesses will create new jobs. More people coming to work in the city means that there will be increased demand for office accommodation. This bodes well for Spanish office landlords who have waited patiently for the return of a more sustainable growth cycle, as the Global Cities team found on a recent visit to the city.
Following the acquisition of its peer Axiare, Inmobiliaria Colonial has one of the largest central office portfolios in the city of Madrid. Office vacancy levels in the city are expected to fall to 7% by the end of the year. And supply of the highest grade office space in the central business district is set to become even more limited, creating pricing power.
As a result of its prime portfolio, Colonial achieved a 29% increase in rental income on leases renewed in Madrid during 2018. The company has also said it believes contracted rents could grow by another 50%. Against this favourable backdrop, the company is planning €1.3 billion of new developments to expand its portfolio.
No longer just a “blue sky scenario”
If Madrid’s political and business leaders can follow through on their promises to lower administrative barriers to innovation, the city’s future looks promising. Greater inflows of talent and capital should follow, as we have seen in other parts of the world.
And landlords with affordable, flexible office space in desirable locations should share in the economic value creation that will result.
Important Information: The views and opinions contained herein are those of Schroders' Global Cities Team, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The material is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. The data provider and issuer of the document shall have no liability in connection with the third party data. The Prospectus and/or schroders.com contains additional disclaimers which apply to third party data. Regions/sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this document include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 1 London Wall Place, London, EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.