Santander Central Hispano, Spain's largest bank, is to vacate 25 office buildings in central Madrid when it moves into its new headquarters, under construction on a suburban site 15km away.

SCH's move illustrates the dilemma facing companies and planners in Europe's most charming capitals: how can cities keep their 18th century aura and still make room for 21st century businesses? In Madrid, the preferred solution has been to expand the city's borders.

The problem is that SCH and Banco Bilbao Vizcaya Argentaria, its arch-rival, have literally become too big for their boots - or urban office roots.

Consolidation in Spain's banking sector and two decades of economic growth have turned both into sprawling banking groups, with a patchwork of offices across Madrid.

BBVA decided to sit tight in its skyscraper and sell its excess office space. SCH, on the other hand, is packing its bags to move out to the countryside. Like other European cities, Madrid has grown out from its tiny historical centre into a sprawling metropolis.

The city's financiers originally needed to set up shop within walking distance of the Bank of Spain. In the 19th century, commerce branched out to the Gran Via, Madrid's first boulevard. The 20th century saw the expansion along a new principal street, the Paseo de la Castellana.

But the lack of modern, affordable office space in the town centre and the ability to transact business from remote locations has since pushed business beyond the city's ring road.

Emilio Botin, SCH chairman and one of Spain's wealthiest men, boasts that his bank's 160 hectare plot makes the E270m (£166m) project - dubbed the Financial City - the world's largest.

The mixed-use complex was designed by Kevin Roche, and includes 100,000 sq m of office space, restaurants, a shopping mall, day care centre, gymnasium and a golf course.The complex, which is well beyond the city limits, is the start of a new phase, prompting local government to improve motorway access and increase public transport to area, which has been minimal.

The improved infra- structure will also make it easier for other companies to follow, further decentralising economic activity and giving a fillip to Madrid's suburbs.

Serafin Mendez, SCH general director for property management, says the project was born out of necessity and a desire to bring more modern workplace conditions to Spain.The inefficiencies that resulted from operating in two dozen different buildings had become obvious, he said, and traffic in central Madrid had turned simple meetings into organisational and logistical nightmares.

The idea of the corporate campus first dawned on Mr Botin after visiting the headquarters of First Union, the US bank based outside Charlotte in North Carolina.

Banco Santander, the precursor to SCH, was a shareholder, and monthly board meetings at the First Union campus opened Mr Botin's eyes to a different way of doing business.

A corporate headquarters outside the city was rare in continental Europe, and one as large as that of First Union was unheard-of in Spain. Mr Mendez says: 'It was like starting from zero, building a new bank from scratch.' All but its most emblematic offices will be sold. The bank is holding on to its old headquarters and those of Central Hispano and Banesto, the two banks it acquired.

Everything else is going on the block. SCH hopes to sell 14 buildings with 112,000 sq m of office space for E540m before the new campus is ready in the first quarter of 2004.

The sales would earn the bank a capital gain of E300m, slightly higher than the construction cost for the new campus.The leases for 11 buildings with 45,000 sq m of space will also be ended.

The sales are welcomed in Madrid's tight office market. Despite the recent economic slowdown, prime office rental prices are still hovering near 10-year highs of E42 a sq m, twice the level of 1998 and almost three times that of 1994 and 1995.

However, investors may be reluctant to pay a top price for the buildings for the same reasons that SCH wants to sell them, says Borja Sierra, general director of FPDSavills in Madrid.

He observes: 'The problem is that many buildings in the centre don't meet modern needs. Madrid has some 8m sq m of office space, but more than a third is in buildings that need renovation to meet current building codes.'They lack natural light, have low ceilings and need repair.'

Mr Sierra expects the best properties to be snapped up by investment funds, while the older offices in the centre may be transformed into hotels or individual offices.

Other Spanish companies have been leaving central Madrid for the same reasons. Several have relocated to the business parks on the fringes of Madrid, though congestion and competition for the space checked the size of the projects.

Endesa and Iberdrola, Spain's largest utilities, moved into new offices outside the centre, but well within the city limits.

The new headquarters of Telefonica, Spain's largest company, is also being built near the city. SCH's new site is close to the pricier towns where many of SCH's bankers, including Mr Botin, have built their own mansions.

The change will not be so easy for rank and file workers. The prospect of a long commute is expected to lead many employees to follow the bank outside the city. A survey of some of the 5,000 workers to be seconded to the complex found 20 per cent are considering moving house to ease the journey to work.

But until transport links are improved, the bank will hire a fleet of buses to carry employees to the corporate campus.

Financial Times