Seeing over €2.3 billion of investment in 2020 alone – an notable uptick on 2019 levels which were €1.1 billion – the Build-to-Rent (BtR) market in Spain is certainly heating up. Indeed, according to a recent report from EY, 5.4 per cent of the 504,000 new homes due to be built in Spain over the next four years will be used for rent, highlighting how a shift away from home ownership is growing in prominence.
Evidenced by a huge uptick in investor activity, with Primonial, DWS and Nuveen leading the way by partnering with Spanish residential developers, it’s clear the fundamentals of this asset class are an attractive proposition.
Although the trend is relatively new in Spain, there’s a lot to be said for its success elsewhere in Europe. So what exactly is driving this and what can we expect to see going forwards?
Affordability of housing
While it is not an issue that is confined to Spain, the affordability of housing is certainly one of the key drivers behind the trend towards well-amenitised rental apartments.
With house prices only rising, the barriers of entry for younger people especially are increasingly stark, particularly for city living. With many higher paying jobs located in Madrid, Barcelona, Seville, Malaga and Valencia, the desire for people to live close to their place of work often denies them the opportunity to buy and therefore renting is the only financially viable option. With levels of unemployment reaching as high as 15.5 per cent in 2020, many are faced with the fundamental inability to save, and thus the elusive opportunity to gather together a deposit makes renting all the more favourable.
Pent-up demand for good quality residential property
It’s a well-known fact that across Spain (similar to the UK and other European markets), there is a somewhat limited supply of housing stock that provides adequate amenities. Unlike even a decade ago, the modern-day renter has come to expect far more than a couple of built-in wardrobes and a dishwasher in their accommodation. Forthcoming BtR developments across major Spanish cities are contemplating the inclusion of significant shared spaces such as swimming pools, gyms, outdoor padel tennis courts and even co-working spaces in order to satisfy the level of requirements.
Investor intentions
As an investment prospect, the BtR sector has become an increasingly popular choice thanks to its defensive income streams. While institutional money has historically targeted the sector, we are now also seeing the advent of more diverse funding sources with asset management/developer joint ventures (such as the Primonial/Grupo Lar agreement) becoming increasingly prevalent.
While the effects of Covid-19 on the sector are unclear, the fundamentals of BtR in Spain cannot be ignored. With lines blurring between BtR and co-living residences, another market segment on the rise, we expect demand for rental living in all forms to continue to increase in Spain, so long as the macroeconomic fundamentals continue to be conducive.
Source: Savills