According to a survey conducted by Multinacionales por la Marca España (An association of international companies operating in Spain) in 2022, three-quarters of all investments registered in the country are directed to the Madrid region. Why is it so attractive to investors and what types of investments are the most profitable here?
Content:
- Focus on non-residential real estate
- Investments in warehouses and street retail
- From offices to coworking
- Dormitories and colivings
- Secondary housing
- The best areas to live and rent in Madrid
- The perfect Madrid Portfolio
Focus on non-residential real estate
The total amount of investments in real estate in Spain amounted to 10.8 billion euros for the first three quarters of 2022. Structurally, two-thirds of investments, that is 7.5 billion euros, fall on the office, warehouse and street retail sectors. Another 3.3 billion euros fall on the residential segment, which includes real estate in apartment buildings, residential centres for the elderly and student dormitories.
Investments in the office, warehouse and retail real estate sectors in Spain for the first nine months of 2022 increased by 80% compared to the same period in 2021. The segment of apartments and houses in Spain in terms of investments grew by 28%. Only student dormitories in the third quarter of 2022 attracted a record 850 million euros for Spain.
The trends characteristic of the entire Spanish real estate market is also relevant for Madrid. From January to September 2022, the city attracted 207% more investment in real estate than in the same period a year earlier.
Investments in warehouses and street retail
Record growth is shown by sales of premises for warehouses and retail. In the third quarter of 2021, their combined volume amounted to 113% compared to the indicator of 2021. According to JLL, this is 90% higher than the average total investment in this sector of the market for the first nine months over the past five years (2017-2021). Most investors are international companies that have decided not to miss the opportunity to invest in a sector with such excellent dynamics.
A similar picture can be observed in the retail premises market. In the third quarter of 2022 alone, investors invested 3.69 billion euros here, which is 427% more than the same indicator in 2021. In the retail space sector, the peak of investment falls on street retail. The supermarket segment showed moderate growth of 14% over the same period and shopping centres revived again in the post-pandemic period, attracting 69% more investment during the first three quarters of 2022 than during the same period in 2021.
From offices to coworking
In the office sector of the country's two largest cities, Madrid and Barcelona, investments worth 2.04 billion euros were made from January to September 2022. This figure is 25% higher than in 2021. In addition to the growth of investments, you can also notice their redistribution within the segment.
Inflation, rising rental rates and falling sales are forcing small businesses to look for more attractive offers in the office rental market. While large companies cannot yet be re-imagined without traditional offices, the owners of small firms are increasingly choosing co-working. The rent savings are almost two times as noticeable for a small-scale business.
A perfect example of investing in this segment is a complex of warehouses and co-working facilities that opened in 2022 in the Alcobendas area which is in the north of Madrid. More than five million euros were invested in the old printing house in 1968. It should be noted that the developer deliberately created a very fractional space, that being about 1,000 warehouses and 60 separate zones for co-working.
The developer is going to open several more similar complexes in Madrid in both the north and south of the city, as well as beginning the expansion to other cities in the coming years.
This case illustrates a successful format of work with non-residential premises and renovation of old properties.
Dormitories and colivings
Against the background of an increase in the number of students, investments in student dormitories and co-living in Spain are becoming very attractive. This is an opportunity for investors to diversify their portfolios.
Student housing began to be actively built after the end of the pandemic. When COVID-19 broke out, the occupancy rate of student dormitories dropped significantly. However, this did not lead to a strong drop in prices on the market as investors and creditors waited out the storm and prices remained stable. Investments in this sector have maintained profitability and remained at the pre-crisis level. During the period of rising interest rates, alternative housing sectors, such as student dormitories, housing for the elderly and apartments in Spain, are becoming more attractive for investors seeking to diversify their portfolios and increase the profitability of investments.
Student housing also benefits from strong rent growth, as in most European countries this sector is outside the regulatory framework that limits rent growth. This encourages investors to look for offers in this sector that will provide them with quick access to this hypothetical increase in rental prices.
The direction is also promising due to the growing number of European students who are less likely to leave for universities in the UK after Brexit and the resumption of visa restrictions. This option is also supported by historical data showing that during the economic recession, more people decide to continue their studies and change their speciality more often.
Thus, any type of student housing will be in demand in Spain for a long time, therefore they are worth paying attention to.
Secondary housing
In the secondary market, prices are rising more slowly than the options discussed above, however, they still show positive dynamics. According to the latest Spanish real estate price index, prices for such housing in the country increased by 0.1% in January 2023 and reached 1,922 euros per 1 m2. This figure is 5.4% higher than in the same month last year.
The price of a long-term rental in Madrid is still high, regardless of the age of the housing. Only 27% of one-room apartments rented in the capital cost less than 750 euros per month. Regardless of whether you are going to rent the property to tourists or locals, the key requirement for the apartment remains its location as almost everything depends on the area in Madrid.
The best areas to live and rent in Madrid
The Madrid metropolitan area consists of a central city divided into different districts and several satellite cities, which, depending on their location, are better or worse connected to the capital in terms of transport.
In the central part, the best areas to live in are Salamanca, Chamartín, Hortaleza and Retiro o Moncloa. The cheapest areas are Ciudad Lineal, Vicálvaro and Barajas. Next in line comes Tetuán, Vallecas o Usera. You can also focus on the location of the district, as there is a higher economic level in the north of the city, therefore, housing prices are higher.
Sol-Gran Via is a real city centre, the main transport interchange and a tourist mecca. Housing prices here are very high and cost on average above 5,000 euros per 1 m2.
Chamberi is the former residence of the Madrid aristocracy, where there are a large number of monuments and historical buildings. Prices are similar or slightly higher than in Sol-Gran Via.
The Retiro area is famous for the park of the same name which is one of the most beautiful in Spain. The population density here is not very high, which adds a sense of exclusivity to the area. This affects real estate prices and costs on average about 4,600 euros per 1 m2.
Malasana is known for its cultural events and pronounced artistic emphasis. Average house prices cost on average 5,500 euros per 1 m2.
Salamanca is the financial and business district of Madrid, where banks, institutions and offices of international companies are located. It is not surprising that thanks to one of the most memorable urban landscapes in Europe, an astronomical price per 1 m2 is set here which is an average of 8,000 euros.
La Latina is a popular entertainment area, with many clubs and is visited primarily by students and those who love nightlife. It is located near the city centre and offers buyers a much more affordable real estate price than in the centre which is about an average of 2,400 euros per 1 m2.
The perfect Madrid Portfolio
If you want to invest profitably in real estate in Madrid, take a closer look at the commercial sector, which demonstrates impressive growth rates. To diversify the portfolio, you can add investments in new formats of co-working and co-livings. Among residential real estate, investments in the housing segment for students seem to be the most promising. At the same time, buying a comfortable apartment in a good area remains a fairly stable option that allows you to balance the portfolio.