Having been severely affected by the impacts of COVID-19, Spain’s economy has rebounded strongly to outperform the Eurozone average, marked by steady GDP growth, and falling unemployment. However, the recovery of the real estate market is expected to be uneven and depend on demand for individual asset classes and regional preferences.
The market shows an imbalance between supply and demand, which intensified in 2023 as increased demand from foreign buyers encountered limited supply due to reduced developer activity, rising construction expenses, and higher labour costs. This imbalance is attracting investment, but interest rate fluctuations and demographic shifts emphasise the need for investors to monitor regional trends to ensure the timing of investments in key hotspots.
A strategic focus has been hospitality investment, specifically in luxury hotels located in popular tourist destinations, maintaining Spain as one of the most active markets for this class in Europe as sovereign funds and other investors drive activity. Demand for logistics real estate, motivated by consumer reliance on eCommerce during the pandemic, has also compelled significant investment in this area.
In 2024, the growing emphasis on sustainability and environmental consciousness has elevated the demand for eco-friendly and energy-efficient properties, offering investors the chance to capitalise on the burgeoning market for sustainable real estate. Opportunities exist within each asset class and below we briefly explore the main dynamics of each:
Logistics & industrial
Spain has been experiencing significant growth in this sector over recent years, as the country's strategic location as a gateway between Europe, Africa, and the Americas, as well as its strong transportation infrastructure environment, make it an attractive destination for logistics and industrial investors.
A key driver is the increasing demand for eCommerce, with the growing preference for online shopping among consumers dictating a need for efficient logistics and warehousing facilities to support the storage and distribution of goods, with the country’s well-connected road and rail networks well-positioned to meet this demand. Although take-up is forecasted to be slightly down year-on-year, rents are anticipated to show signs of growth.
Retail
The impact of COVID-19 created a limited pool of investors, but this resulted in faster price corrections and movement in transactions. As the economy continues its journey toward pre-pandemic norms, improvements to consumer fundamentals are having a positive effect as footfall sees a steady increase. Previously hesitant retailers’ intent on retaining an omnichannel presence are now showing greater interest in renting strategic locations at more affordable rates, creating potential for attractive rental yields and long-term capital appreciation.
Additionally, the focus on premium core assets with long-term contracts, particularly in high-demand areas such as supermarkets, offers a secure investment avenue. As the market continues to evolve, foreign and domestic investors can find promising opportunities to diversify and expand their portfolios in the thriving retail sector.
Residential
2023 saw a slight decrease in investment due to rising interest rates and new housing regulations, with impacts varying across different regions based on demand and the effects of the regulations. However, market predictions indicate a shift in the cycle this year, coupled with the fact that Spain is building less than 50% of the required number of residential homes annually. This suggests that despite challenges, the residential sector will remain one of the most active markets, offering ongoing opportunities for investors.
New rental housing law targeting reduced prices, increased supply, and improved access in the rental market, has been inconsistently implemented across Spain. Overall, the impacts could potentially be the direct opposite, with supply down and access reduced. In areas where rent limitations are in effect, the demand for Build-to-Rent (BTR) projects for permanent housing is expected to decrease. This shift may benefit other growing residential practices like co-living and seasonal renting, which remain unaffected by the current housing law.
Despite the significant growth of the student accommodation class in recent years, ample investment opportunities remain as the coverage ratio is still lower compared to other reference markets, indicating untapped potential. Moreover, investor interest is shifting towards secondary or tertiary locations outside of Barcelona and Madrid, driven by the search for imbalances in supply and demand that are becoming less prevalent in the primary markets.
Offices
The legacy of COVID-19 saw a fall in investment and subsequent correction in sale prices, transaction volumes, and financing activity.
The flexibility, cost-effectiveness, and collaborative atmosphere of co-working spaces are making them increasingly popular options for investment and one of the factors shaping the market. Prime assets, a relatively scarce commodity, are showing strong resilience as tenants prioritise asset quality and location, leading to robust performance and forecasted increases in prime rents in popular urban centres.
In multiple urban centres there has been a general shift towards repurposing buildings for residential concepts where regulations allow, potentially opening new opportunities for investors.
Hospitality
Tourism is critical to the overall health of the Spanish economy and recent growth in hotels has cemented the country’s position among the world’s top tourist destinations. A highly developed infrastructure and professionalised industry has seen the hospitality market enjoy a strong recovery since the return of international travel with high occupancy rates and revenues.
Hotel investment reached €4.23 billion in 2023, the highest in Europe and 30%+ higher than in 2022. The asset class is proving the most popular for real estate investment, with foreign capital playing a central role, representing 75% of the total investments and a higher share in specific regions. Growth is at its highest in the luxury and premium sectors, with an owner/operator model increasingly prevalent for the higher potential for profitability and return on investment.
Investments are split between the holiday and urban segments, with Barcelona and Madrid emerging as the leading urban destinations, and the Canary Islands and Balearic Islands as the main holiday destinations. This surge in investment reflects a unique opportunity to acquire prime assets with high liquidity and minimal exposure to market uncertainty.
