Welcome to the Inmobiliaria Colonial third quarter 2023 results presentation. The management will run through the presentation, which will be followed by Q&A session. If you request to ask a question at any time during the presentation, by dialing star one on your telephone keypad, you will be placed into a queue. I am now pleased to introduce Mr. Pere Viñolas, CEO of Inmobiliaria Colonial. Please go ahead.
Thank you. Good afternoon to everyone. This is Pere Viñolas speaking. I will run you through the presentation of the results, together with Carmina Ganyet, Chief Corporate Officer, and Carlos Krohmer, Chief Corporate Development Officer. I would like to start with the highlights of our presentation on page 4 of the presentation that we will be following. First of all, I'm pleased to say that the third quarter has been an outstanding quarter again for us in terms of our performance. First, we've seen a strong growth in net rental income. It's a strong growth, which means an 11% growth in terms like-for-like, which means that it's a good figure in absolute terms, but also in relative terms to the peers.
Our EBITDA growth, recurring EBITDA growth, its growth, its growth, it's 13%, reaching EUR 233 million, compared to EUR 207 million year-on-year. Finally, the EPS is, of course, showing also healthy growth of 8%, reaching EUR 0.238 per share. So all in all, a strong growth in net rental income, EBITDA and EPS. In this line, let's say that accordingly, we are revising our guidance upwards, from EUR 0.28-EUR 0.30. That was the previous guidance. To approximately EUR 0.31, as we will discuss further in the presentation.
Basically, the driver behind this strong growth in our net rental income, EBITDA and EPS, is a very good performance of our assets, both in volume and rental growth. The letting volume has showed an outstanding performance. We have signed 133,000 square meters year to date. That is equivalent to EUR 49 million of annualized rents. This is much higher than a long-term average, so it's almost a record year, what we are the path that we are showing right now. As a consequence of this, the group occupancy is at the end of September, at 97%, with Paris still fully let at 100%.
And this outstanding performance, and it's not only in quantitative terms, but also in qualitative terms, meaning that the nature of the contracts and the clients that are signing with us remains very high, with a strong tenant demand coming from professional services, luxury brands, companies, and similar kind of high-level clients. I said that the performance has been outstanding in terms of letting volume. Also, it's been very good in terms of rental growth. The ERV growth that has been signed up to the third quarter of September of this year is showing an 11% growth, no? 12% in the case of Paris. That means that the rental growth is showing acceleration. And behind that growth, it's rental growth itself, but also, of course, the a solid capture of indexation.
That is, a full pass-through of inflation at this time of the year. And, of course, this healthy rental growth and letting volume is done also in a framework of low carbon assets, which are attracting these high-quality tenants at maximum rents. That's the main points regarding the, let's say the PNL. In the meantime, concerning the balance sheet, we've been following our policy of disciplined capital structure. We've been keeping on disposing selectively of the assets. The third quarter of this year, we have sold EUR 100 million of additional disposals. That put us very close to EUR 600 million of disposals a year to date, and at very interesting valuation levels. And year to date, we are basically selling at appraisal value.
The particular disposals that we have done during the third quarter have taken place at a 12% premium to a gross asset value. That, I think proves that we've been quite successful compared to market performance. And particularly showing the high degree of liquidity, and not only liquidity, of valuation attached, the market valuation attached to our assets, no? On the other side, liquidity remains very healthy. EUR 2.7 billion, almost EUR 600 million more than a year ago, and with a healthy hedging strategy that is ensuring that interest rates remain below 2.5% in the long term. These are the highlights. And now we'll go into the details behind this data.
But just to give flavor of the rationale of the drivers of what has happened during this third quarter , we firmly believe that the main driver of this is the flight to quality trend that we can see in the market. The polarization, which is increasing as a fact. The fact that many companies have already decided that they want to increase their presence in the locations where the experience that is being provided to the employees is outstanding. That happens to be in places where the vacancy is extremely low, where scarcity is a major issue, and where the vacancy is close to zero in Paris and below 2% in Madrid and Barcelona. And therefore, this is the main driver.
Happily, the market is starting to differentiate between different submarkets that probably deserve a different view from anyone's point of view, no? The letting performance, as I said, as a consequence, it's been outstanding. I gave the main numbers in terms of square meters signed, annualized rent, and rental growth. But just a few examples. Velázquez 86 in Madrid has been signed above EUR 40 per square meter per month, so EUR 41. Washington Plaza, to give an example of our friends, we see current tenant taking up additional space at EUR 1,000 per square meter.
In Cloud again, in Paris, we've seen during this quarter a 12-year lease signed with a luxury goods company for more than 9,000 square meters at this top rent. And finally, in Galeries Champs-Élysées, a 7-year non-cancelable turnkey lease signed with Adidas for more than 3,400. Page 5, 6, sorry, it's just an illustration of what our equity story is. You can see our current situation in Paris and in Madrid. And here you can see what is happening in our supermarket of aspirational office, no? And what is the kind of occupancies that we see.
And in page 7, not only the occupancy, but just to share that this performance is happening with very good KPIs in terms of rental growth and rental level. You can see the 12% rental growth in Paris as a very, let's say, outstanding number. EUR 1,000 as a maximum rent signed year to date in Paris. But you can also see Madrid performing quite well, 8% rental growth, and as I said, EUR 41 per square meter per month already signed in certain assets, no? So, a very good set of numbers with a rationale that is based on a polarization as the main driver of this outperformance.
With these introductory remarks, and now I will ask Carmina to step in and to comment on the financial performance of the company.
Thank you, Pere. As usual, in these sections, we are going to detail the main indicators and drivers that underlie this strong evolution of the results. The results of these three quarters are described in the first place by a strong growth of the cash flow. Recording net profits increasing 8% year-over-year, 19% without considering the asset sales. And the same growth year-over-year is shown on the EPS, up to EUR 0.238 per share. The main driver of this growth is mainly the EBITDA, increasing 13% and 19%, continued operation, in line with revenues, with a growth of 8% like-for-like, up to EUR 279 million. Secondly, the strong cash flow.
The strong cash flows is supported by an extraordinary operational activity, with a letting activity of more than 113,000 square meters. Meaning an outstanding occupancy of 97.4%. This letting activity has been close at exceptional conditions, as you can see, which represents a rental growth of 11% above inflation. Demonstrating again, the pricing power of our portfolio benefiting of the polarization trend as Pere was mentioning. Additionally, all the contracts has been updated, as you know, this year to an average index in between CPI and ILAT in France of 5%. And finally, a solid balance sheet. Due to an active management of the balance sheet carried out, as you know very well, in a permanent basis, we maintain the rating, the investment rating of BBB+ by S&P.
We continue to keep as well, a very strong position, of liquidity, eliminating any refinancing risk. And as well, we maintain a fixed cost of debt of 100% in levels below market of 1.72% spot. And for the following years, as you know, we're well below market levels, thanks to the pre-hedged, structure, which ensure a debt coverage ratio according to the ratings agencies. In the following page, you can see the most relevant indicators more visually, that shows the growth of Colonial cash flow and the resilient profile of our portfolio that I was mentioning, before. If we analyze the recording results, we see that it increases by 8%, 19% without taking, into account the sale program. The building block shows the positive contribution of the continued operation of the portfolio, EUR 54 million.
On the other hand, the negative impact of the disposal of non-strategic assets, EUR 13 million, and as well, the negative impact of the financial cost of only EUR 12 million. Basically, this impact of the financial due to the rate effects. Remember that in September 2022, the financial cost was 1.4%, compared to the existing cost of debt of 1.72%. The market, as you know, has been increased more than 300 basis points, while the cost of Colonial, the cost of debt for Colonial has only increased 30 basis points. Consequently, due to the strong cash flow and also due to the strong operational performance, the full year EPS is being revisited up to circa EUR 0.31 per share, beating the upper range initially released in the previous communications.
This strong EPS is mainly based on the strong growth on gross rental income. First, back on the strong like-for-like growth of 7% of the operational portfolio, EUR 18 million. Secondly, the entry into operation of the project, contributing with EUR 28 million, 11% growth. And on the opposite direction, as you know, the sale of non-strategic assets have had an impact of EUR 29 million. As a result of the portfolio of a higher quality, has showed year-on-year an increase of gross rental income of 7%. And where has been this growth and why? I am in page 13. It should be noted that the 7% rental growth has been positively impacted by a great performance in Paris market with a 13% rental growth.
In comparable terms, of the portfolio, the three markets have performed very positively, with an extraordinary evolution in Paris and in Madrid. This extraordinary like-for-like growth of 8% is basically due to a combination of rental growth, thanks to the scarcity of Grade A assets in the markets where we are operating. The price impact also includes the indexation effect, thanks to the quality of the contracts and clients. And finally, the improvement in occupancy, especially in the Madrid portfolio, as you see in this chart in details in page 6. If we look in perspective, the rental growth is being accelerated, as you see here in details in this page. You can see the extraordinary year of the rental growth and net and gross compared to the last three years.
Moreover, you can see the growth capacity of rentals beyond indexation effect. Very healthy levels of growth in the last quarter, as we are, as you can see in this page. As you well know, Colonial is characterized by an active portfolio management in order to recycle capital and strengthen the capital structure. In a very narrow market, as narrow as the current one, we have been able to sell almost EUR 600 million, EUR 574 million, confirming valuation. The operational close in the last quarter adds additional EUR 100 million to the disposal program, with an average premium of 12% to the last supported gross asset value.
As you see in this map, the three disposals are non-strategic, with a land plot in the periphery in Madrid, a secondary asset with a 17% vacancy, and a small asset also in the secondary area. With these new disposals, we have been expanding the divestment plan that we shared with you in the last presentation of results. According to market conditions. The results, we believe that these results that has been achieved with this disposal program is very outstanding according to market conditions. We have confirmed valuations, we have reinforced the liquidity and the debt positions, and we reinforce as well the quality of our portfolio.
As we have been sharing in quarterly, in each quarterly presentation, Colonial has been very actively managing the capital structure and therefore the debt, and as well, successfully covering the interest rate and any refinancing risk that we may face. In this sense, there has been a decrease in net debt of EUR 240 million in the last 12 months, with a loan-to-value of 39%, according to the last appraisal. We have also a fixed interest cost of debt at occurring levels of 1.7%. And additionally, and as you know, we have, we have explained in the last presentations, as a consequence of the hedge closed in 2021 of 50% of the debt at rates of 0.67%, which represents a mark-to-market position today of the derivatives of more than EUR 300 million.
We can guarantee a financial cost in the coming years below 2.5%. Finally, as you see here, the liquidity position remains strong and healthy, covering any refinancing risk of the future debt maturities. In the financial management, another important milestone that demonstrates the ability of Colonial to have access to the financial market has been the signature of the new revolving facility of more than EUR 800 million, EUR 835 million, under very favorable conditions and providing additional liquidity as well to the group. This revolving credit line is qualified as a green loan, reference to a very ambitious green KPIs that allows us to maintain the strong position from one hand and confirms as well our strong commitment on the ESG strategies of the group.
Thank you. Now we enter into the next section, and Carlos Krohmer will walk through our year performance in the operational side.
Thank you very much, Pere. I'm on page 19. As Pere mentioned at the beginning, we have signed 130,000 square meters year. This is extremely large, because if we take into account that we are already several quarters at very high occupancy levels, we have really not that much space available. And even though we have signed a lot and almost on previous year levels, because previous year we signed 24,000 square meters in the Beyond project, if we take this out, we are at the same levels as the previous year. That was a record year. When we look at the breakdown of this, more, close to 50% is luxury industry, tech and media, professional services, and we've signed with an average maturity of nine years, so extremely strong.
Mainly, on the Paris portfolio, an example that it's nice to be highlighted, we have recently signed with a cosmetics company that was already in the building, extra space, and at a record rent, at the levels of EUR 1,000. So people are taking more space in our buildings at record rents. And this leads me directly to page number 20, that is our rental growth profile, which are the levels of rents that we are signing in our contracts. And as you can see here, the market rental growth is accelerated, accelerating. In first quarter , we signed rents 2% above the market rental level of December 2022, in Q2, 6%, and now at 11%. So really extremely outstanding.
We think it's one of the highest levels in the market, and it's driven, not mainly by Paris, but we are also seeing a very strong acceleration in the Madrid market. So very, very strong rental growth and across the board. When we go to the next page, on page 21, we see how the occupancy profile is evolving. And again, we have improved our occupancy. That was already at very high levels, and 97.2% to 97.4%. We have improvements on all the levels, year to date, and especially a very relevant acceleration in Barcelona. In terms of absolute levels, Paris at 100% and Madrid at 97%, where at the beginning of the year it was at 96%.
So really, I would say structurally, we are talking about a full occupancy situation and, just a little bit of structural available space. Which is the space that is available? We can see a zoom of this space in page 22. So today, on the office part of our portfolio, that is almost now the full portfolio, we have 2.8% of availability. Basically, this is in Paris, we have nothing available, as of today. So this is basically then concentrated in 4.7% availability in the CBD of Madrid. As of today, this ratio is already lower because we have fully let, now, two weeks ago, the Velázquez building. The CBD of Barcelona, the availability is just 0.3%.
And then we have three assets, that one of them is entry into operation of a renovation program that are concentrating 1.7% vacancy in the Barcelona market. So a very healthy situation with quite interesting available products. If we then go to the next page, to the from the operating portfolio to the project pipeline. As of today, out of the eight projects that we have seven are fully let, 100% let. The main highlight of this quarterly results is the fully completion of the full letting of Velázquez. We have let this last floor at the record rent of EUR 41, and I think we can say today that Velázquez is one, or maybe the building with the highest average passing rent in the Madrid market. So it's one of the best buildings in the market.
What is now will come progressively into operation in the coming quarters in 2024, is the Méndez Álvaro campus. Just to remind, we have a part of this that is office, and then a part of this that is residential. On the office part, we have today already very advanced conversations for more than 10%, and we have, in addition to this, a number of large clients that are really visiting several times the building with many interests. So we are really in good mood on the commercialization of this project. Last point on page 24, as Pere mentioned at the beginning, the GRESB results have come out just recently. We have again increased our standing portfolio rating. We are now at 94 on 100 points.
This is extremely high and puts us at the top 3 level in listed Europe, and we confirm the five-star rating for the fourth year in a row. And on the development benchmark, you know that we also do projects. We are even higher. We at, at 98 out of 100, with a very relevant increase since we started to participate in GRESB and also a very relevant increase year-on-year. In addition, you know that we are really in the business of creating low carbon destinations. This has been also officially, by third party, awarded with the BBCA. This is a label of low carbon buildings in France.
We have obtained 100% of low-carbon building certification for the projects in our French portfolio, and Colonial has been included in the newly created IBEX ESG Index, that we are also quite proud of.
Thank you. So some final remarks on my side. Well, first of all, on page 26, just to state the fact that Inmobiliaria Colonial is working and delivering very well in terms of cash flow and EPS delivery. In the end, what we see is a multilayer cash flow growth. First of all, with the pass-through of inflation showing maximum power, maximum pass-through, a real inflation hedge, as we've seen before in the figures that have been shared by Carlos. Second, moreover, rental growth in terms of like-for-like that it's very high in absolute and relative terms, and moreover, additional cash flow coming from projects and the acquisitions that we've done in previous years. All of this is transformed into a recurring EBITDA that is growing 13%.
As it has been stated before, it's remarkable that we, this EBITDA is growing 13% if we consider that we've been in a divestment mood in recent months and years. Therefore, this could be revisited. To say that if we look at this from a continued operations point of view, the cash flow would be increasing 19%, which would be even be much, much more. The earnings per share, of course, as a consequence, also showing a remarkable performance, EUR 0.238 per share at the end of September, 8% year-on-year. 19% if we were to adjust by the impact of asset disposals.
A very strong performance, and therefore, as I said at the beginning of the presentation, we revisit our guidance for the full year EPS, from the previous EUR 0.28-EUR 0.30 per share to circa EUR 0.31 per share. As I said at the beginning in my introductory remarks, I think that what's going on is clarification of the performance of the market that more and more is clearly showing the different profile of the different markets. Simplifying what you can see on page 27 at left is that the different occupancy in the Grade A CBD kind of places, 0.2% in Paris, 1.7% in Madrid, compared to a less attractive performance of the rest of the market.
8% vacancy total market in Paris, 12% vacancy in total market in Madrid, is driving the prime rents in a different way. While rents remain not so much performing in the outer M30 or in the outskirts of Paris. If we look at prime CBD markets, we already can see an accumulated rental growth, which is relevant both in Madrid or in Paris, as you can see in this chart. At Colonial happens to be mainly in the prime CBD, and therefore we enjoy the results of this strategy, and we are showing an occupancy of 100% in Paris and then 97% in Madrid, and a rental growth of 12% in Paris or 8% in Madrid.
This, let's say, different performance and polarization of the market, of course, means that our GRI like-for-like growth is showing an absolute number, 8.2%, which is remarkable, but also that is different to the peer group average or the peer group mean. The other benefit from the positioning of Colonial in high quality assets is when we look at the investment market. As you know, we've been selectively divesting in the last 12 months. We've executed EUR 600 million. That is mainly focused in Spain because the nature of the market, which is more focused on a smaller size kind of assets, no? Makes it easier to implement a disposal strategy.
But anyway, it's relevant to note that, in Madrid market, where there have been, according to market sources, a total divestments or total volume of transaction of less than EUR 1 billion, Colonial is representing, roughly speaking, half of everything that has happened in the investment market during the year. So it's, it's obvious that we have to conclude, on the high liquidity of our, of our assets. And, since we've been selling this at appraisal value, but more recently at premium, as you can see, we also have to conclude, conclude that not only do we own liquid assets, but do we own, assets that are perceived from a market, valuation point of view, very well, at the moment of, disposal.
So, not only, we are happy about the performance of our ordinary course of business and the cash generation, I think on the divestment side, particularly in Spain, we can so far between private housing. My final remarks, page 29, are a little bit to revisit again some of the highlights that I've been sharing through the presentation. First, statement, Colonial's letting performance continues at historical high volumes. So at the moment, where the office as an asset class is challenged, when you talk about a specific kind of asset class as Grade A stock, the scarcity and generates a race to quality that is accelerating bifurcation, bifurcation, and this is happening across Europe.
This is because central locations are benefiting from short commuting times, which is a key factor for us, office usage. And not only commuting time, but also experience and cultural benefits of central prime office on well-being are proving that are here to stay. As a consequence of this, Colonial's assets are capturing above average market rental growth. That's the other statement that we can say coming from the experience of the year so far. Rents are rising with accelerating momentum, double-digit yearly growth in Paris, for example. Colonial's net rental income growth, in terms of like-for-like growth, it's among the highest in Europe, and we've been therefore revisiting our EPS guidance up to the levels of around EUR 0.31 per share.
Not only on the assets that are already in place, also the creation of top product is proving to deliver extra value and extra cash flow. Basically, we're proving that Colonial is able to transform urban centers with amenity-led space. To have the examples of Louvre and Madnum, and this strong track record of urban transformation with outstanding capital value gains is the other evidence, no? Of our year so far. And this say high end, no, kind of performance, it's not only on the quantitative side, it's also on the qualitative side. And in particular, when we talk about sustainability, where low-carbon destinations are also proving to outperform the market in terms of occupancy and rental level.
And finally, we'll remain with a balance sheet with financial strength and discipline, with low cost of debt, debt that is 100% hedged, that in the for the next two years, that will remain hedged. And this is very important, not only today, but at very high levels, no? In the next four years, that means that the spot cost of debt, which is today 1.7%, will remain very low for quite a long time. And in this framework, our divestments are taking place, as I said, at a good level and in line with appraisal value. So all in all, a good set of results for the third quarter . The operating performance, we believe it remained quite solid, and that's what we wanted to share with you today.
Thank you. Now, as usual, we'll be open for any questions you may have. Thank you.
Thank you. Ladies and gentlemen, the Q&A session starts now. If you wish to ask a question, please press star one on your telephone keypad. Please be informed that there can be a short silence while questions are being registered. Thank you. Your first question will be from Mark Kulessa at Bank of America. Please go ahead.
Hi, thank you very much, and, congratulations. Hello?
Hola.
Hello?
His line, yeah. Mira, his line?
No.
Ah. And now.
Hello? Hello.
I'm sorry, somebody has removed his line. We will move to Florent Laroche-Joubert.
Okay, we wait.
One moment, please.
Yes.
Please go ahead, Markus.
C an you... Yes. Okay, sorry, for the misunderstanding. Two questions. First, on the revolving credit facility you signed, maybe you shared it already, and I missed it. What is the cost of a drawn debt for this facility?
Yeah, the cost is swap plus the spread, and the spread is below the bond spread that we see it in the market. So it's in the range of 120-130, depending on the KPIs.
Okay, thank you. Then, do you have an indication? I read somewhere that you have disposal signed but not yet executed. Do you have a volume of disposals already signed, which might come in Q4?
No, no, not yet. We are working on the interest that we have received from several investors in certain assets, but we are not disclosing any evidence on this yet, no? We believe that we'll be able to show additional disposals, but we cannot be specific at this time.
Okay, then looking forward to it. Then I wanted to ask you if you were looking at raising secured debt, maybe on the cost, the spread should be similar to the one you just gave me. But especially on your SFL part, because you, as you're probably aware, your EPRA LTV is pretty high because of the treatment of your minorities on the asset side and not on the liability side. Is there anything you're looking to do to address this and maybe raising more secured debt, especially on the Paris asset?
No, we treated the balance sheet as a group. You know, we have 98% of SFL, and as well, the rating agencies are looking at the balance sheet as a group. We don't have today any secured debt, so all the debt is corporate through bonds and through long-term club deals. But the fact that we manage the balance sheet as a group and without putting additional leverage for any reason of KPIs or loan to value, that has been decided. So this is why we stick with the criteria that the rating agencies are looking at, at us.
Okay. Thank you very much.
Thank you, Mark.
That was it.
Thank you. Next question will be from Ignacio Dominguez at JB Capital. Please go ahead.
Okay. Good afternoon, and thank you for taking my questions. Two questions, if I may. Firstly, how do you think the recent increase in bond yields could spread out to your portfolio valuation, and how much yield expansion do you think is left in your portfolio? Secondly, do you plan to continue with your asset divestment program in 2024? And if so, would these proceeds continue to be used to reduce leverage? Thank you.
Yes. Well, we believe that 2023, it's being a year of repricing of the assets in the market. Our yield has already moved up, no? Roughly speaking, 60-70 basis points. I think this is not finalized, no? I think that the, where exactly the market will finish this adjustment, of course, it's unclear at this moment. We believe that we've gone a long way, but probably not finished yet, and we may see, no, additional components of repricing by the year end, no? Having said that, what I wanted to highlight is that this pricing adjustment is a result of nominal interest rates that go up because inflation goes up.
If we think about it, that means that as of now, we are observing the first leg of this adjustment happening, with this yield expansion happening. This may end soon, not so soon, but as we said, we've gone a long way, but it's a one-off, no? Once this is done, this is over. And then comes the second leg, which is the fact that we pass through in our cash flows the inflation as it's happening. So therefore, it's a kind of a V-shaped, kind of a performance one that should be impacting in our evaluation, not also in our evaluation, but in the evaluation of our sector.
But to answer your question, as I said, we believe that having gone a long way, this is not finished yet, and we may still see further adjustments by year-end. The asset divestment in our company will remain a driver of our strategy, as we have shown up until today. It's been quite healthy the way that we've been able to handle this with divestments happening in very good terms. In other words, at implicit NTAs very attractive, in line with the NTA that we have.
So, if you can do more of this, not only that you are improving your capital structure with a healthier LTV, that compared to capital market valuation, you are creating value every time that you dispose of an asset way above, no, a way higher than where the price of the stock market is in capital markets today. So we will keep on doing this. You can see that we do not, we are not specific about assets or figures because I think that right now you have to be talented to find the right windows, the right moment, the right way of managing the market.
So far, I think we've done quite well, and it will remain like this, being mainly opportunistic about things that can be done without attaching a specific number or a specific name, no, to this strategy.
Sorry, Ignacio, it was another question about the use of proceeds-
Ah, yes.
To cancel the debt. As of today, we would like to keep that liquidity and not to do any, well, liability management or another use of proceeds. First, because we don't have any stress about ICR, according to the cost of debt we have today. And, as of today, the decision has been keeping the liquidity, because always it's an optional value to keeping the liquidity today.
Okay, thank you.
Thank you, Ignacio.
Yep. Next question will be from Adam Shapton at Green Street. Please go ahead.
Hi all, thanks for the presentation. Hopefully you can hear me clearly. A couple probably for Carlos. I wonder on Méndez Álvaro, two things. The market rent growth you've seen in Madrid, do you expect to capture that in Méndez Álvaro as you lease that up, you know, compared to what you were underwriting 12, 18 months ago for that? And then secondly on that, are you. Do you expect to be fully let by delivery, or are you a bit more relaxed about waiting to capture further rental growth there? And then one separate question, just are there any specifics about the negative releasing spread in Q3 in Madrid, but was it certain assets, certain leases? Any color you could provide on that would be helpful, please.
Okay. Yeah, maybe start with the second question before going into the pricing. The project will be progressively delivered by phases, not all at once, and it's a large project, so it would not be. We have to see how quick this will be let up. But we are also not in a super hurry, so this means we are seeing extremely good demand. A lot of people visiting the asset. We are in very advanced conversations on more than 10% of the office part, and what we are seeing as of today is that the rents are very good and well above our initial underwriting. So we are really prioritizing high quality clients with good rents. And this means sometimes to wait a little bit more but then get a big chunk of demand with a very good rent.
But at the moment, the momentum there is very, very encouraging. Honestly, reasonably higher than we could expect at this moment because the asset is not yet finished. And, so this is very good. On the release rate, I did not get very well the question. If you just could repeat on that point, what was your question?
Yeah, sorry. Just on Madrid releasing spreads on page, is it page 20 of the presentation? Just recorded -2%. Was that a specific asset?
Yeah.
Bit surprising to see a negative number there.
Yeah. Good, good question that you put. At this quarter, the release spread is not really a very meaningful statistical data because it's just in one building. It's one building where this happened, so a very low activity point. It's a building Arturo Soria, so not really in the super CBD area. And yeah, there, we had a slight correction to the passing rent. Indexation has been, has been, more rapid and earlier in Spain, and this has closed a little bit more the reversion gap. But it's not really statistically relevant because it's just one asset.
Sure. Sure. Nice surprise there. Okay. Thank you, Carlos.
Thank you.
Thank you. And next question will be from Anna at Escalante. Please go ahead.
Good evening. My question is regarding your comments on market rental growth. So if I understand that correctly, you are saying that market rental growth is accelerating, therefore, the growth in market rents has been faster in the third quarter versus second quarter . But when I look at your numbers, and correct me if I'm wrong, because there is maybe something I'm missing here, you're saying that you signed rents 3% above December ERV in first quarter , then 7%, and then 9% for offices. So the way I interpret that, is that effectively, the rental growth decelerated in the third quarter. Could you please clarify that?
Yes. Well, no, If we go on page 20, you can see it. On page 20, you see the rental growth. So you see how compare the signed rents with the ERV at the beginning of the year. And what you can see is for total group, Q1 2023, 2%, and for the office part, that is now roughly all of, almost all of the group, 3%. Then if we go to Q2, we see 6%, and 7% for the office portfolio. And then when we go to Q3, we see 11% for the whole portfolio and 9% for the office portfolio. So, we are having every single quarter, a higher growth on the ERVs that we have signed in our portfolio. So we have an acceleration of the ERV.
Also, there's a data point that is not here, but when we look at the maximum rent signed, we have now reached EUR 1,000 per sq m a year in Paris, and we have signed at a record rent, about 40 EUR per sq m a month in Madrid, the Velázquez building. So, maybe I did not understand your, your sub question, but here the figures are quite clear.
Yes. So my question was that, yes, I understand that the rents at which you are signing new leases are accelerating, but the growth at which that rents are growing is not necessarily accelerating according to these numbers, right? So I'm talking about the growth rate in market rents, not market rents in absolute terms. Because if I compare the first quarter versus-
Sorry, sorry. Work at Anna, please, excuse me. Sorry.
No, I watch, I watch this. Yeah, so for example-
No. So it's the growth of the growth in itself. Well, I think in today's world, to report an 11% growth on ERV, I think you have to look around a lot if you find any other company that is signing at these levels. And if you want to say, yeah, from 2% to 6% or from 6% to 11%, I'm not really sure if this is so much the point, because what you also. Well, I don't know.
But Anna, sorry, probably to clarify, the facts show that the contract that we have signed in the third quarter , at 11% more the rents than the ERV, December 2022. If you compare these levels of rents, the new contracts from the third quarter , if you compare to the first quarter , in the first quarter , only was 2% above the ERV. So in fact, the rents that we are signing now are much higher than the rents that we have been able to sign in the first quarter . So the consequence is, yes, in our portfolio, because of this polarization trend and its scarcity and the lack of offer, we are able to increase rents in the same building. Okay. Thank you, Diana.
Thank you. Next question will be from Fernando Abril at Colonial. Please go ahead.
Hello. Thank you very much for the presentation. I have a couple of questions. First, again, on rental growth. Probably the thing I don't really understand is when I look at your slide number 27, I find out that the Paris rental market is very flat at EUR 1,000. But on your side, you are accelerating on new rents. So I guess this is probably because of your portfolio outperforming the market. But I think that in the medium to long term, I think it would be very good news if the market also grew. So I don't know your comments about the rental market in Paris itself. Why is it flat year to date? And second question is on your, again, on disposal.
So I don't know, but if you find a strong appetite or for one of your prime assets in Paris, at a very attractive price, let's say, would you be considering selling it? Or instead, you prefer to continue on doing bolt-on disposals. Thank you.
Well, again, first of all, I think when you look at the prime market rental data, you have to keep in mind when brokers put this data point, is there three transactions with the higher rent that have been signed in the market? Something like that is a very limited, no amount of, pricing really at the top levels. And yes, maybe we have now a second quarter . We are remaining at the ultra-high level of EUR 1,000. But having said this, what you can see also is that the availability in the Paris CBD market is at 4.6%, and the demand for high-quality space is very healthy. When, if we would do a breakdown, a further breakdown of the demand, that it's not in our presentation, for large floor plates, the demand is the strongest.
As you may see, when you look at our portfolio progressively in the last years, we have concentrated on assets which large, with large floor. And this leads to situations that, for instance, in the cloud building, that we reported this in the second quarter , we had a tenant that left the building that was at a level of below EUR 800, and it took us just six weeks to relet this building and at a level well above, at close to EUR 1,000. So really, our product is getting extremely strong demand and success in the market. And all of the contracts that we have been signing, we have been signing in excess of the market rent that the appraiser has put on this building. And in excess, in terms of double digit, 11% is really super strong.
So c oming back to the market, it's very scarce, especially if you then cross, Grade A with large floor plates, it's absolutely nonexistent. So at the moment that we put something on the market, we have really a very strong success. And for this kind of product, the rental growth, on the respective rental growth, we remain very confident.
Okay.
Maybe there was, Fernando, second part of your question. Well, first, on the, on the first one, I would not elaborate the, just the general theory of market rental growth, based on the numbers that we see here. The only thing we wanted to say is if we look at what we sign, which is factual, which is actual data, it happens to be, 12% above what we're in the ERVs of our valuations at December of last year. And that in that h ealthy indicator. From this to extrapolate, where do we see the number of rental growth in Paris or in Madrid? It's always difficult, you know, because we are based j ust on our very selective evidence of our assets.
So I would just remain with the fact, well, these are numbers, no? The numbers that we show at September, we believe that in these terms are rather good, no? And the second part of question, which was about divestments in Paris. Well, we don't have, let's say, a principle for divestment more than the fact that we look individually at each asset that we own. We look at the marginal return that we expect as this asset remains into in our portfolio, based on the expectations that we have for each one. The more this asset can capture the general trends of the market, no?
Of providing exactly what the market wants and therefore experiencing higher rental growth, the more is the marginal return that we see in this, the less inclined we may be for the sale of this asset. In any case, when there's interest that is shown to us for each individual asset, we do a comparison of to what extent, where the market appetite is compared to this, let's say, marginal return that we expect, no? Usually, the consequence of this is that the more an asset is aligned with our strategy of flight to quality, less likely we will sell. That doesn't mean that it has to be here or there, no?
There's no particular constraint in order to say that the market for our assets will be happening in Spain or in France. What is true is that, as we all know, France, it's a more institutionally oriented kind of investment market that has remained, let's say, more cautious during this year. While Spain, because of the size of the assets, it's a market that marginally, it's more biased towards a different kind of investor, more family office oriented, let's put it this way, where the market is functioning for this kind of assets that we own, more efficiently. And as a consequence, we've done a lot in Spain and less in France.
Well, we will adapt to market circumstances relative to the attractiveness of each asset at any moment, but without any specific guidance from our side of where the activity will take place.
Okay. Thank you very much.
Thank you. Next question will be from Celine Soo-Huynh at Barclays. Please go ahead.
Hello. I was just wondering if you could provide some kind of comments about your Spanish portfolio. So my understanding is that ILAT should still be quite good for the French portfolio next year, and then you've got the CPI in Spain, which is accelerating again from June. So we can imagine a very good indexation in H1. In France, like, it looks like it should be, it shouldn't be a problem. But in Spain, we're starting to see negative release spread coming through last quarter in Barcelona, this quarter in Madrid. So my question is, how confident are you on the fundamentals of the Spanish portfolio at the moment? And if you could provide any comments, including reversion, and vacancy to be reduced in Barcelona for next year. Thank you.
Okay, thank you. Thank you for the question. Yes, indeed, from a temporary point of view, indexation started earlier and accelerated more rapidly in Spain. So obviously, as a consequence of mathematics, it has narrowed more the reversionary potential of the price effect in Spain than in Paris. And Paris, moreover, is a market that is a little bit stronger in general terms. So this would be the first comment. The second comment is that as a whole, our portfolio still remains with a strong reversionary potential on price and also on occupancy. And then it comes down to the second KPI that we here have highlighted and has performed quite well. That is, to what extent are we capable to report rental growth?
So far, especially when we look at the Madrid market at the moment, we had had in the third quarter an 8% ERV growth, so we are here having a higher ERV growth than the indexation. But yes, the reversionary potential is higher on the Paris part than on the Spanish part. This is factual. And now we have an acceleration, no? Because of the time lag, the ILAT in Paris. Regarding the occupancy, we typically do not guide on this. Very difficult to guide in this market in general on this. I think the first thing that I can say is that we have improved the most year to date, the occupancy on the Barcelona market. We have improved it by more than 500 basis points year to date, so we are working on this.
It's very specifically concentrated on, on three assets because the rest of the portfolio is at levels of 98%, so fully let. One of the assets is the renovation program of Torre Marenostrum . This is in the, in near to the sea. It's a little bit more international demand driven. And then we have Sant Cugat. Sant Cugat is a more difficult asset. In the secondary area, it's one of the few. We have now very few assets that are in secondary areas, and we don't like to be in these areas, and these areas are a little bit more difficult. But yeah, we are working on it. We had a lot of progress on Barcelona portfolio, so let's see in the coming quarters what we can come up.
Okay. Carlos, can I follow up on that? Because, I guess if market rents remain flat, like we've seen this year, is it possible to see negative reversion coming through next year in the Spanish portfolio? I.e., my question is, are you over-rented and are you still pushing the inflation up, which is quite positive at the moment? Is there a risk of a negative reversion next year?
The only thing that I've said is that the reversionary potential is, at this moment, higher in Paris than in Spain.
Okay.
This is the only thing that I've said. Moreover, we are still, year to date, on other contracts that we signed in Spain and in France, and delivering on top rental growth. So this is what we can say about it. So we are confident.
Thank you, Carlos.
Thank you.
Thank you. At this time, we have no other questions registered. Please proceed.
Okay. So, thank you all. It's been a real pleasure to share with you these results, and we look forward to meeting you soon again by the end of the year. Thank you very much.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we ask that you please disconnect your line.