ECONOMIC CONTEXT
Spain’s economic environment in early 2025 is characterized by a recovering housing market, persistent but controlled inflation (annual CPI at 2.3%), and a slight increase in population to 49.08 million. Tough mortgage conditions, slow wage growth, and relatively persistent inflation have increased rental demand. The market anticipates further improvement in macroeconomic conditions and potential additional ECB interest rate cuts, which should support increased transactional activity in the living sector.
DEMAND OVERVIEW
Leasing and investment demand in Spain’s living sector remains robust, with a notable shift toward rental products due to affordability challenges in home ownership. Key trends include:
- Strong rental demand driven by tough mortgage conditions, rising home prices, and demographic changes (smaller households).
- Institutional investors remain highly active, particularly in BTR and Flex Living, with the latter seeing a surge in both deliveries and investment volume (+300% YoY in 2024).
- Major Q1 2025 transactions: Hines acquired a Flex Living scheme in Valencia (650 units, €65M); Vivenio purchased a BTR asset in Madrid (180 units, €50M).
- Affordable housing is gaining traction, accounting for over one-third of total investment volume in 2024.
- Expectations for increased deal activity in 2025 as the macroeconomic outlook improves and interest rates decline.
VACANCY TRENDS
Vacancy remains low across the living sector, with high and growing demand outpacing new supply. The gap between demand and supply is expected to persist, supporting continued rental growth. No significant impact from sublease space is noted, and the market remains tight, especially in prime city centres and established rental submarkets.
RENT TRENDS
Rental prices for BTR/PRS/Flex Living assets continue to rise, with more than 10% year-on-year growth despite increased stock. Prime city centre rents are €25.0/sqm/month in Madrid and €23.3/sqm/month in Barcelona, with decentralized rents at €20.0 and €18.3/sqm/month, respectively. Sharp rental increases have pushed affordability ratios to high levels, particularly in central Madrid and Barcelona, intensifying pressure on these markets.
CONSTRUCTION & SUPPLY PIPELINE
The construction pipeline remains active:
- BTR stock has grown rapidly, from 500 units in 2019 to 25,300 by end-2024, with a pipeline of 30,300 units, bringing total provision to approximately 55,600 units.
- Flex Living stock tripled between 2022 and 2024, reaching nearly 11,900 units, with a robust pipeline of 17,820 units (total provision nearly 30,000 units).
- PRS stock remains stable at around 20,000–20,600 units.
- The BTR market is fairly distributed among main investors, with Avalon leading at 18% market share.
- New construction is concentrated in both prime and decentralized locations, with institutional capital playing a key role in funding and development.
