Ladies and gentlemen, thank you for standing by and welcome to MERLIN Properties' 9M20 Results Presentation. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask questions during the session, you need to press star one on your telephone. I must advise you that this conference is being recorded today, Friday, 13th of November, 2020. I would like to hand the conference over for our speaker today, Inés Arellano. Please go ahead, ma'am.
Thank you. Good afternoon, ladies and gentlemen. Welcome to MERLIN's nine-month 2020 results presentation. First of all, we hope that you're all safe and sound. The executive summary distributed last night and available on our website will be the supporting materials used today in this presentation. Our CEO, Ismael Clemente, will start with a brief introduction, followed by a Q&A session for which both Miguel Ollero and David Brush will be at your disposal. Without further delay, we pass the floor to Ismael. Many thanks for your attention. Ismael? Thank you.
Thank you, Inés. Good afternoon, everyone. Welcome to MERLIN nine months 2020 results presentation. We are proud to report what we believe is a good performance in the circumstances, showing very high resilience of our business and even some little growth capacity, which is no small feat. Retail has obviously been heavily affected by the mobility and gathering restrictions, but offices are showing an almost immaculate performance. Logistics are shining. It's heads and tails with shopping centers as a result of e-commerce penetration. We are enjoying extremely high collection rates, basically similar to business as usual. Our litigation is negligible at present, with only 35 pending procedures in court out of 1,800 contracts. In terms of numerical performance, our gross rents diminished by 3.5% as compared to the same period last year. However, you need to account for the change in perimeter.
In like-for-like terms, that would have been a 1.4% increase. Our FFO per share went down by 16.8%, clearly affected by the tenant relief measures given in shopping centers, which have cost us so far EUR 39.6 million, recorded as a one-off expense, optically eroding our normally high operational margins. However, the good thing is that we have been successful in keeping the occupancy cost ratio of our tenants at reasonable levels, currently standing at 12.2%. Our peak was 12.9%, down to 12.6% and now 12.2%, which is resulting in extension of contracts and what I would say a certain goodwill in the partnership we have with our tenants in the different shopping centers. The NAV per share is 3.3% up, but this is meaningless because there's been no revaluation in the period. That is simply drag from last year.
Very importantly, the incentives we are giving in an ordinary business are declining. The company continues to perform reasonably, I would say, unaffected as compared to the pre-COVID situation. We continue to be not fans of ordinary incentives. You know that if you have followed us in the past years. We try to make our rental contracts as close as possible to reality and do not abuse that much of incentives. Even during this difficult period of pandemic, we continue working hard in this regard to make sure that the picture we give to you every time we get in front of you is as true as possible. The FFO per share of EUR 0.42 is on track to exceed the updated guidance we gave to you in March. At the very least, we were almost bang on in our assessment of the situation in March.
Of course, we are missing EUR 0.11. Three are attributable to the change of perimeter, and eight are attributable to the COVID measures, because otherwise, we would already be at the EUR 0.53. That was our objective for this point of the year. In terms of business performance, our office portfolio, as I said, is showing great resilience with 3% growth in rent like-for-like, 1.3% for shopping centers. That corresponds basically to the step-ups that we have had in the shopping centers, 2.9% in logistics. Release spreads are also quite sound, with 4% in offices, 4.1% in shopping centers, and 8.5% in logistics. We have managed to increase our occupancy by 22 basis points to 94.1%. In other words, our vacancy is 5.9% portfolio overall, which I believe is an interesting sign of resilience and strength of our portfolio, and particularly our tenant roster.
The quality of our tenants is fantastic, and this is now shining in a difficult environment like the one we are in. In offices, we have transactions close to 200,000 sq m, with the referred like-for-like of 3.0% and the release spread of 4.0%. Many of you are asking us what is the pre-COVID, post-COVID comparison. I have asked for the exact numbers, and we'll release to you. In the first quarter, pre-COVID, we signed 12,000 sq m, 11,977 sq m of offices. That is new contract signed. That excludes completely renewals and rollovers. In the following two quarters, second and three, we have signed 55,000 sq m, 54,680 sq m. That is a remarkable achievement. In terms of comparison to ERV, which for many of you is important, pre-COVID, we were running at 5.8% above ERV, first quarter.
In the second and third, we have achieved 10.2% above December 2019 ERV, which I believe reflects the strength of the market and of course, our work by our asset managers. The renewal rate, which is very important, particularly in these times, was 59% in the first quarter, and that was also a consequence of one particular break of negotiations. Normally, we are in 75%-80%. In the second and third, we are 83%. Back to normal. That is the renewal rate that we use for the release spread calculation. This doesn't include rollovers. If we were to include rollovers, we would be up close to 95%, which, by the way, is the same ratio that Jones Lang LaSalle is giving to us as stay/go decision result. Now most of the tenants are basically staying where they are.
Very importantly, they are not yet, at least, reducing any space. I know you are all in London and New York, and you fear of massive reductions of space and things like that. Maybe. We have no evidence yet. In terms of release spread, in the pre-COVID world, first Q 2020, we were 11.7%, which was a very good release spread. In the post-COVID environment, we are -2.1%, but this is technically because the Endesa lease is included. If you exclude the Endesa lease, it's 14.2%. As David uses to say sometimes, what we see today is evidence that the market, in normal circumstances, should be accelerating. Of course, COVID has stopped everything, but the market should be accelerating owing to the very low vacancy rates for Grade A quality office buildings, which is what really drives the market.
Macro is important, macro takes time to damage the market. In the short instance, it's more supply and demand and the ratio of occupied space versus vacant space what drives the pricing and absorption of a given market. In shopping centers, we have contracted more than 21,000 sq m with a very light like-for-like growth of 1.3%, and a release spread of 4.1%. In logistics, it's been a great period with 135,000 sq m contracted, like-for-like of 2.9%, and a release spread in excess of 8.5%. What is more remarkable, 100% occupancy in all of our deliveries, which have been substantial in the period. We are, as I said at the beginning, happy with the way we see the company performing. The company is certainly, from a managerial standpoint, is showing its quality.
Everything you touch, every lever you action on, produces the results that you would expect to produce. Which is very important to say, particularly in difficult times like the ones we are on. We look confident to the end of the year despite the new wave of infections and the new wave of restrictions and closures of shopping centers by different municipal, autonomous community, central authorities. Despite all that, we look confident to delivering good results for the year overall as of end of December. We also look confident in 2021. We are prepared to operate in a no vaccine environment. That is important. If we have vaccine, all the better. We believe 2021 is going to be a year in which, with or without vaccine, we will be able to beat our 2020 numbers confidently.
Without further delay, I think we could probably move into Q&A. All the team is here at your disposal, David, Miguel, but also the divisional heads. Everybody's here. Happy to answer any questions you might have.
Thank you, Ismael. Operator, could you please open the line for the Q&A session?
No problem, ma'am. Ladies and gentlemen, we will now begin a question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be taken by an operator. If you wish to cancel your request, just press the hash key. Once again, please press star one for question. Ma'am, your first question comes from the line of Álvaro Soriano. Please go ahead. Your line is open.
Hello. Thank you for the presentation. Quite instructive. Perhaps three questions, but the first one is, why MERLIN is extending the rent relief for retailers? I wonder if it is the right thing to do under current circumstances, or is very much needed to protect the future of your shopping malls. The second one is also on retail. We've seen Invesco and also Lar España trying to or successfully selling their supermarket exposure. I wonder what can we expect from your Caprabo portfolio in the future. Are you expecting to follow your peers and put those assets in the market? The last one, the third one maybe for you, Ismael, how do you see the investment appetite towards Spanish assets? It has changed in the last three quarters, or we are in the same mode? Thank you.
All right. Thank you, Álvaro. As for the extension of our measures, this is a measure that we have carefully thought internally, and we have adopted out of what I would call an elementary prudency. We don't know whether the vaccine will be ready now or not, but we do believe that there will be some, at the very least, logistical complications in the distribution and application of that vaccine to the world's population. We are preparing for a first half of the year in a no vaccine, fear of COVID environment. As a consequence, we have been observing carefully the trends in terms of footfall and sales per square meter in our shopping centers.
We have been observing the sales per square meter and profitability of our clients, the ones that have accepted our policies, because when we report footfall and sales overall, that includes the sales of people who are dead. After observing all that, we have devised a policy that I am very happy to say that one month into finishing the acceptance period, have been already embraced by more than 80% of our retailers. We are extending our protection of retailers, our partnership with our retailers for the first half, in case it is needed. Maybe it is not needed. Maybe they continue to arbitrage us. So what? We have reduced the occupancy cost ratio from 12.6% in the end of last year numbers to 12.2%, which means basically that we have been marginally generous on the relief program we have provided to them.
What's the matter? We will recover from them. There will be a new normal in terms of rent re-equilibrium. We don't know where the needle will settle, but it will settle somewhere. At least we will be able to recover from where we are now. The new set of reliefs that we have applied for the first half reflect that idea about continuing to protect our partnership with people, particularly now that we are working with some of our clients on the design of the shop of the future, how to put together half of the shop for showroom, half of the shop for automated last mile delivery logistics. We are working with a number of them in a number of initiatives, very interesting initiatives. We want to protect that partnership with all of them.
Our feeling is that we are in the middle of a disaster, but we will emerge stronger from this pandemic, because thanks to our diversification, which has been demeaned so many times that I have lost count. Thanks to our diversification, we have been able to act in the protection of the interest of our retailers. 10 years from now, it might be shopping centers protecting the interest of our office tenants. We will see what happens in the first half. If the vaccine is ready, distributed, and applied to the population in January, we will be miserably wrong in our estimates, and our clients will have arbitraged us successfully. No problem. We will recover on the second half. This is why we have extended, but don't read in that extension a fear of the retail armageddon. Our shopping centers continue to perform reasonably well.
By the way, now elasticity of people movement to the different regulations by the authorities is total. In the first wave of the pandemic, after the restrictions were lifted, people took three, four, five weeks to come back to shopping centers. Now it is like a yo-yo. The restrictions are lifted, people back in the shopping centers. Restrictions are not lifted, people doesn't go to shopping centers. People have now adapted, because the human being adapts to everything, have adapted to looking at the state official gazette every day before going out of home. We can report, for example, that last weekend was the best footfall ever for our ex-Madrid shopping center, for example, in Alcorcón after opening. It's curious. People basically react to the orders of authorities. As for the investment appetite, I would say it's a tale of two cities.
For shopping centers, it's quite limited. I would say almost nonexistent except for super highly opportunistic players. For offices and especially logistics, we still see a lot of investment appetite. In fact, the recent transactions we are seeing in Spain, but also in international markets, are showing us that maybe what is in front of us is a second wave of yield compressions rather than yield expansions in these segments as we have always been fearing for the short term, because in a zero or negative interest rate environment, people is hungry for yield and ready to pay a little less for a good quality cash flow. This is what we are seeing in the market. As for the sale of supermarkets, maybe you want to.
Sure. Álvaro, I think you're right in your observations, and it's not just those transactions you mentioned, but others. There have been quite a bit of interest in net lease, particularly the supermarket or what I would call in the U.S. probably convenience store assets. We are exploring avenues, several avenues, I would say, with regard to the Caprabo portfolio. Nothing advanced far enough that we can make any definitive kind of statement. We are pursuing avenues because we think that asset class now is high in demand. Those assets are very well located. We think it's something that should have good demand. I would say stay tuned. Don't try to put me to a date. It is something that we're actively exploring.
Okay. Thank you very much, guys.
You're welcome.
Your next question comes from the line of Stéphanie Dossmann. Please go ahead, your line is open.
Hi, everyone. I just have one question on offices. Can you provide a comment on the 6.8% of the rents expiring in 2021? How much has already been renewed? What kind of level? What are your tenants saying? Thank you.
Well, the renewals in our office portfolio, looking forward into 2021 represent 6.8% of the overall portfolio of the company and 14.8% of the office portfolio. We believe that those renewals, in my opinion, will be probably surprising the market. We believe we might lose space. Okay. I have been now very actively after the heat of the pandemic, I have had more time in this quarter to be in the market and talk to the agent. Cynical agent, what he describes to me as the fashion victims will want to reduce the space because they believe they can save space because of the work from home or things like that. In his opinion, this means that they will be doing tenant representation for a couple of years, and they will be screwing us up a little bit.
They also believe that most of those calculations are miserably wrong, particularly because their internal architecture departments are going to start now recommending and applying to interior design much higher densities. Now, as a consequence of that, many people could be terribly wrong in their calculations, and they will come back to us in a year's time. In which time, they said they will go back into landlord representation and they will screw up people back in terms of rent. For the foreseeable future, we might lose a little bit of space, occupancy, not so much rent, because the supply-demand remains heavily constrained. In CBD, it's sub 3%, the amount of vacant space. For new business areas, it's in the region of seven point something, 8%, but if you exclude the non-Grade A buildings, it's also relatively limited.
This is what we are expecting for next year. Let's see anyway how the year plays out. A very important calculation that we have been making now that we have a little bit more time is the following, which is probably not known by many of you. The percentage of cost of an average employee, including fixed and variable of salary, represented by real estate in Spain, according to CBRE, is 4.2%, comparing to 8% in the U.S. We have run our own calculation, taking the average salary, fixed and variable, of the IBEX 35 and taking our average cost of offices, which between Madrid and Barcelona is EUR 17.75, plus expenses that we have assumed to be EUR 3.75, around 20%, 21% of the fixed office cost component. If you do that calculation, if you do that math, you will come to the conclusion that it is 4.1%.
Bang on with the number that Richard Ellis gave us. In the case of MERLIN, we also did the double check of office. In our case, it's 2.6%. For those people who believe that by shaving on real estate and the quality of life of your people, you can save significant amount of money, probably wrong place to look at. In the words of a human resource director to which I was commenting the results of our research, "Every guy I fire, I make room for 25." I said, "Yes, exactly. At the same cost." He said, "I know I have more inefficiencies in staff than I have in real estate." This is the reality.
This is a little bit like Andersen's tale of "The Naked Emperor." The people we are talking to, HR directors, CFOs, tell us that they need more space, not less. They also tell us, in recent conversation with a head of a Big Four multinational in Spain, they also tell us that if they tell that to Chicago, they will be fired. Nobody says it, nobody comments it in public, but people know they need more space.
Thank you. Ismael, can I just cut you here? Can you just quantify what you just said? That was very interesting, but can you quantify it out of the 6.8% rent next year? Also when you said that you could surprise the market, is that in a negative way?
You want me to give you the rent at which I will lease the 6.8%? When I lease, I will know the rent. I don't know yet.
Okay. Fair enough.
Operator, do you have other questions?
Yes, ma'am. We got another question, comes from the line of Fernando Abril. Please go ahead, your line is open.
Hello, hello. Hello, all. Just three quick questions. First, on the commercial policy that you recently launched for 2021. Is there any feedback already from your clients, and what is the level you expect for, let's say, problematic clients for 2021? Second, on dividends, what should we expect for the dividend policy in view of the situation going forward? Also for the part of the dividend that was put on hold from 2019 results, if there is any, if you could provide any kind of guidance going forward. Last question is, you've already mentioned some of this, but how do you see the investment market in offices? Is it recovery or is it still mute? How confident do you feel to preserve values in the current environment? Thank you very much.
Okay. Thank you, Fernando. Look, in terms of the extension of the policy to the first half of next year, where I was commenting is that there is still one month to adhere to the policy. It has been already accepted by more than 80% of our tenants. There are many of them who are still passing their internal constituencies. We expect a level of acceptance that will be in line with what we have had in the past, which has been in the region of 90%, 92%. In terms of what happens to the non-acceptors, the non-acceptors are people to which the policy is not applicable. There are clients to which the policy is not applicable because they haven't been forced to close or whatever. We know they are trading well.
For the rest, we have a, let's say, constant surveillance of performance, and we have identified 2.5% at present, which we believe are dead. Many of them are already in our litigation. Many of them are already accounted for in our litigation figures. Some of them have already been evicted. 13 of them have already been evicted, and the other 35 are in current eviction procedures. We have a further 3%, which is a little bit borderline. We don't know which side they will go. There could be maybe another 3%, which is either non-applicable or people that we believe will come back, will survive after the crisis. It will depend on next year's evolution of the pandemic to see whether those figures go up, go down. Those are the orders of magnitude we are talking.
In principle, and I think this is consistent with what we explained to the market at the time we adopted the policies in the first quarter, our effort has been aimed at freeing up our asset managers from the burden of extending contracts in 2021. Contracts have moved straight into 2022, which means our asset managers will devote the full 2021 to re-tenanting. Every time an eviction procedure results in the effective eviction of the tenant, they will work in the re-tenanting of that shop. That may take a toll temporarily in occupancy, but it is what it is. We need to refresh our shopping centers, particularly considering the effort we have made in terms of tenant relief. In terms of investment appetite, do you want to.
I just want to make one observation about the policy, too, that I think for those who are doing the math to try to determine, is it better to not give relief and try to litigate or give relief? What's the math? First, it's art, not science. That said, in addition to the things that Ismael just said, I think it's also important to know that it is significantly more expensive to find a new tenant than to retain an existing tenant. If those tenants leave or fail because we're not giving them the relief, then you have no expenses being paid, you have fit-out contribution likely for the next tenant coming in, and you have commercialization costs. When you look at all those costs of having to bring a new tenant in and compared to the relief that we've given, in our math, it's pretty close.
Would you rather maintain a very strong tenant relationship, keep the mix, and end up roughly the same place financially? Take a path of litigation where now you've got a much more difficult relationship with all of your tenants going forward. You have to keep in mind that commercialization cost around having a tenant go under is a big factor. It's not simply, well, you grant relief or grant no relief. You've got to look at the other cost side of that equation as well. That's what we've done in doing this. Particularly with the second, which is obviously not as significant as the first, you're later now into the pandemic. All the people who have held on, it's now getting to the point where they need that extra to get across the bridge.
We now at least see the other side of the bridge at least visible. I don't know whether that other side of the bridge is March, June. It depends on a lot of things, but at least we know it's there. To grant that incremental relief to ensure that those who've been able to hang on so far don't fall off in the next four or five months, I think that math works out pretty well from our internal calculations. I just wanted to make that additional point.
Okay.
Just a quick follow-up. I understand your approach, but this, I don't know, other retailers or other landlords are taking the other way around, no?
Yeah. Well, I would say.
Why do you think they are doing it?
I think the other landlords don't have a diversified portfolio. When you look at the impact of the COVID incentives we've given, look at the year we just had. We were able to still demonstrate a meaningful FFO because it's only 18% of our portfolio. If you're only a retail guy, that's all you are, you can't afford to do that because it's so much more of your FFO. If you look at the people like a Klépierre or Unibail or Lar, for example. They don't have the flexibility to do that we do. I don't think they can even afford to do that math.
They need the cash flow now to be able to run the business, whereas we have much more flexibility because of EUR 90 million of rents from BBVA, the rents from Caprabo, the fact that our office portfolio has performed pretty much bang on pre-COVID levels. That gives us the flexibility to do things in our retail business that pure play retail owner doesn't have.
In other words, Fernando, I have been talking to all of them because all of them, of course, call us and blame us for adopting this kind of policies because they cannot follow suit, et cetera. You know what? I say, "Look, everyone plays his own strengths." When we started, I remember road showing this company when it was a pure cash box, and people said, "You want to do shopping centers?" It's impossible. You cannot do shopping centers. You want to do logistics? You cannot do logistics. You cannot compete against Prologis. You cannot compete against Unibail. Everyone has his own strengths. For so many years, we have been treated as local rednecks because we have 15 shopping centers. We are not global. We are not specialized in one asset class. Okay.
Everybody took advantage of their strengths, and those big names were trading at incredible premium to NAV, et cetera, and we couldn't say anything. Now times come tough, and we can afford a number of humble measures that help our people, and they can't. We adopt those measures. This is the way we see it. Diversification has two phases. We have always been suffering the bad phase of it because we don't look cool for Americans. For our little market, we have explained thousands of times that in a 50 million people country, you cannot be single asset class. Nobody believed us, but now it's paying off. In terms of investment appetite, I was commenting before that the way we see the market, people is a little bit waiting on the sidelines.
Consistent with what we see in the rest of the world, the amounts of equity waiting on the sidelines are incredible. Incredible. This time around, we are not talking about opportunistic equity. Opportunistic equity is, of course, also waiting on the sidelines. I don't believe they will make a big progress in Spain in this occasion. The people who will eventually be able to reap some good harvest in Spain this time is value add and core class. Yes, there could be some transactions in the market. Not so much on anything we would like to buy because good quality office buildings, Castellana, Diagonal, Marques de Pombal, prime Lisbon office buildings are not trading, and we don't expect them to trade because the owners of those assets are normally unlevered or very little levered. They are comfortable with the LTVs.
The assets that we trade will be of other natures. For example, I see a big opportunity for hotels. Some people will be able to profit from that opportunity. The amount of money waiting for opportunities is massive because the market this time is much better capitalized than it was in the great financial crisis. As I was commenting also before, what we are seeing across the board, particularly when we look at the outside world, other countries outside Spain, is that yields seem to be tightening, curiously enough. Some office buildings are transacting at incredible yields. Also in Spain, we have seen recently an Amazon shed sold at 3.7%. There is a portfolio now in the market that will probably transact sub 5% including some development, some land. It's very interesting to see what is happening in the market.
We will keep an eye on the market eventually. Against the legend, the legend says we haven't rotated any non-core in the past. In our own computation, we have sold more than EUR 3 billion of non-core in the past. I think people will have a different opinion on us if we still had our hotel portfolio, our resi portfolio, which is now suffering significant collection losses. We have rotated a lot of non-core in the past. We will continue to rotate non-core because we know it's a good source of much needed cash in order to keep LTV at bay, particularly when forecasting the future for valuations of shopping centers, which I believe will be affected by a widening of yields. Eventually, we will try to continue selling some non-core. There is not much now we can sell.
We don't have now plenty of non-core in the portfolio. We will continue rotating non-core, particularly in order to continue funding our CapEx program, which is yielding excellent returns. If we can, de-levering a little bit the company, because this grace of the COVID has found us three years before plan in terms of de-levering plans. Dividend policy. Precisely in line with the de-levering I was referring to, the EUR 0.17 that were unpaid corresponding to last year will be retained by the company. This will be used to increase net to repay debt. As for the future dividend policy after the general shareholders' meeting next year, the board will need to decide. The board is sovereign. It has till the end of the year to decide whether to pay interim dividend or not.
I wouldn't be surprised if they decide not to pay interim and accumulate everything in one single payment after general shareholders' meeting next year. What amount will they decide to pay? Unknown to me. My recommendation, as I have commented recently in a media interview, will be to try to share a little bit the excellent production of cash of the company between dividend distribution and debt repayment, because I want to keep an eye always on the L factor of the LTV, because I know the V will go down in shopping centers almost for sure, owing to all the pressure we are seeing and also owing mathematically to the fact that the re-equilibrium of rents will end up being lower than the rents pre-COVID.
As a consequence of lower rent, there will be lower values in shopping centers. This is undeniable, and as a consequence, we want to keep control on the L factor of LTV.
Thank you very much. Very clear, especially the first question. Thank you very much. Take care.
Your next question comes from the line of Peter Papadakos. Please go ahead. Your line is open.
Good afternoon. Thanks for the presentation, Ismael and team. I just want to focus a little bit just on the office and especially the A1 and A2 corridor. From the outside, obviously, we see very different fundamentals in terms of market vacancy rates and projections of market vacancy rates on a sub-market level. For the MERLIN portfolio, can you elaborate a little bit, how do you see the next 18- 24 months in terms of organic rent growth between CBD, A1, and A2 for your portfolio?
Sure. This is David Brush. I would say in the A1, our main focus is occupancy, as you can well see, because the lion's share of the vacancy in our portfolio is in the A1 corridor. Occupancy and rental growth are always in contradiction with each other, right? Our focus on the A1 is increase the occupancy of the portfolio and less on trying to generate rental growth above existing rents release. All the other markets that we operate in, the A2 included, our vacancy is relatively low, and we're seeing good growth of release spread. That includes some of the peripheral markets as well. That's the way I would define it.
A1, we're focused on growing that occupancy in whether it's the other markets in Madrid, whether it's Barcelona, whether it's Lisbon, we're actually seeing very good rental growth because of the tighter occupancy we have in those markets. An interesting thing also, Peter, is that believe it or not, we are starting to detect some future trends which may help peripheral location of offices. In polls to employees of our tenants, what we are detecting is that they prefer today as we speak, maybe in the future things change, but they prefer to go to work in what we call the green buses rather than the blue buses of the city center. Simply because in the green buses, you have an assigned seat and you have predefined distance to the next seat occupied.
Whereas in CBD buses, in the blue buses, you are standing up and your nose is right in front of somebody else's. Likewise, people is preferring now aerial train rather than subway in the polls we are doing. People prefer to go now to peripheral office to work more than they do to CBD. This is not a problem for CBD because vacancy is so low, but it is at least a temporary trend. Time will tell whether it settles because, in conversations recently with a large asset manager in the U.S., they said to us that they are now moving to a big headquarter in New York, but they are opening sub-headquarters in White Plains and New Jersey. Let's see what happens in peripheral offices. You would be surprised of the performance of locations as remote as Ática, Pozuelo, or Las Rozas. They are performing very, very well.
Vacancy is mainly concentrated in the A1, and this has a reason, which is the lack of infrastructure. Because for 23 years, Madrid has been waiting for the Chamartín development in order to right the infrastructure around the A1 corridor. Chamartín is approved, but the infrastructure is not yet ready. It should start around beginning of 2022, end of 2021. In the future, it will be easier, but we have a number of tough years ahead. In those tough years ahead, what we will do is simply exert market power, bring tenants to our portfolio. Rents, important, not so important. When times get tough, it is important to be big and behave like big. We will do that. If somebody cannot cope with us, their problem. We will be doing our job trying to make sure that we increase our occupancy in that particular weak point of our portfolio.
Understood. Thank you. My final question is just reading between the lines from your press release with regards to the development pipeline. You have big projects, big cycle of CapEx, which is coming to an end. It seems like you are a little bit more cautious, so I guess justifiably so, in terms of launching new projects in this environment. How should we think about development CapEx for [MERLIN] for the next couple of years, after this cycle of money spent now in Q1 2021, et cetera?
I think your assessment, it was in between the lines. We were hoping it was actually in the lines themselves. We are going to be more prudent. When you look at warehouse logistics and ancillary to warehouse logistics, we're still keen to put capital there. Retail, once we finish Larios and Saler in Q1, Q2 next year, retail CapEx program is finished. Largely finished. You're just talking about kind of minor things. With offices, with Monumental, Diagonal 605, Ochenta Cinco, you've got the major parts done, we still have what we call [Nau Cost of UBE], Ruiz Picasso, which is right in the heart of AZCA. That's a project that's in our priority of capital, we will do that because it's CBD Madrid, right in Ministerios. It's main in main. Not only cool, it's hot cool.
Exactly. Retail, you'll see it come down considerably. Office, it will come down simply because this was the pig going through the python this year with those three big projects. Even though we have Ruiz Picasso coming, it will fall off relative to. Then warehouse logistics, we'll continue to be keen to do that. We'll be doing things that are more tied to direct income. It's prudent, and prudent only because as we look now, as you said, the LTV is going to be critical to bring down. We have to be more prudent with CapEx, focusing on those projects that are immediately cash generating, just to be sure that we're able to maintain that LTV until we can see where that retail cycle particularly might bottom out.
I'm just going to amplify what Ismael said earlier, because it's something I had said even back in March. I don't see really any reason for cap rates in office to do anything but compress. When you look now at the U.S. 10-year rate, which even after the recent move is still below 1%, and the U.S. has finally joined the ZIRP world. When you look at the amount of capital that's out there looking for opportunity, I think that's going to continue to push down yield in office. As people become a little more clear about this whole idea of work from home, work remotely, and you're already seeing some of the mindset change. The further you get into this, the more people are saying work from home is not for everybody. The percentage of people that might continue to work from home is less.
I make the comment anecdotally, Facebook, they're all talking to work from home, but they just leased 750,000 sq ft in New York City. Amazon just bought the REI headquarters in Seattle. You just had WeWork sold their building in Manhattan. I forget, it was either Amazon or they got Amazon as well. These guys are all talking about work from home, and they're buying up real estate in major cities in a big way. I still hold to what I said early on, which is it's overdone. People are reacting emotionally. Will there be an impact at the margin of work from home? Yes. Is it possible that could be offset by the move back to less density? Entirely possible.
When you look at what yield should one want to pay for a good, well-located real estate asset, I think there's more upside in that than there is downside.
Thanks. Thanks, David.
Sorry, no more question at this moment, but once again, if you would like to ask questions, just press star one. And you may go ahead, Inés.
Okay, I think we'll leave it for today. Everybody knows that we remain at your disposal. You can contact us, both Fernando Ramírez and myself, if you have any further questions. Well, thank you very much for attending today's call, and we hope that you remain safe and sound. Talk to you early. Bye.
That concludes our conference for today. Thank you for participating. You may now all disconnect.