Why Spain’s alternative living asset classes offer golden opportunities

The Spanish lifestyle never goes out of fashion. Whether spending weekends in Barcelona, relocating to Madrid or retiring to Marbella, Spain scores highly for short visits and long-term living. Consider the work-life balance in Malaga, the location of Citigroup’s new office and where Google, Vodafone and Santander are among companies attracting global talent as a high-performing tech hub. Look to Madrid, where new arrivals number 50,000 each year, making it the EU’s second largest metropolitan area with 6.7 million residents. Spain is the second most visited country worldwide, receiving an annual 80 million visitors seeking its excellent climate, vibrant culture, winning gastronomy and relatively affordable cost of living.

Little wonder then that Spain’s foreign population has grown 20% over the past six years, with a corresponding increase in those buying property. Resident and non-resident foreigners now comprise 20% of the total market: that’s above 2007 levels. And it’s not just foreigners. The domestic market is alive and kicking too.

Despite these compelling statistics, investment in the Spanish residential and living sectors – co-living, student accommodation, senior living and build to rent – has been systematically underweighted. While investment in those sectors over the past five years totalled €33 billion in Sweden, €30 billion in the Netherlands and €26 billion in Denmark, in Spain it totalled just €16 billion.

“Housing rental demand in Spain has intensified over the last decade and will remain strong as household growth projections suggest,” says Javier Kindelan, Vice President CBRE Spain. “Confidence in the underlying market trend has been a key driver for investors to boost residential as the leading asset class, accounting in 2022 for almost 25% of Spanish real estate investment volume.”

The good news for investors is that this signals a market loaded with untapped growth potential. This low investment in emerging asset classes presents golden opportunities to build, reposition, manage and invest in these assets. Changing demographics and social mindsets are leading to altered housing requirements. Rising divorce rates, an ever more mobile population, new work practices post-Covid and the growing attraction of the sharing economy, a mindset focused on usage rather than ownership, has led variously to demand for smaller households, co-living accommodation and housing options for both young people and the elderly.

Take the examples of just two asset classes with a strong imbalance between demand and supply: Build to Rent and Senior Living. As longer-term projects with no immediate yield, these asset classes normally attract early-stage capital investors targeting high returns and, in the current environment with high inflation and high interest rates, high return strategies become more appealing to investors.

Let’s start with Build to Rent (BTR). Renting as a lifetime choice is on the rise in Spain, traditionally a country with high levels of home ownership compared to its European neighbours. Spain has recorded one of Europe’s highest increases in its rental market, rising from around 21% five years ago to 25% today. It’s a continuing trend that CBRE estimates will extend to over 5 million households by 2026, caused by sociocultural changes coupled with the financial difficulty of an increasingly stringent mortgage market. That adds up to at least 1 million rental homes required in the next decade, yet less than 20,000 are in the plans.

Real estate developers AEDAS Homes and Neinor Homes, two of the dominant firms in the Spanish homebuilder market, will collectively deliver 5,000 apartments for rent. The current rental market is highly fragmented. The top 10 PRS companies hold less than 1% of total rental housing stock with the market controlled instead by private owners, often unskilled in professional rental management and lured by the appeal of a quick return through Airbnb-type models. For renters looking for a good experience, the PRS market, professionally operated by experienced managers, is an alluring proposition.

It’s a similar story with the Senior Living asset class, except here the supply is even more restricted. In the 30-year period from 2020, Spain’s population of those aged over 65 is set to increase by an estimated 5.7 million. That represents an increase of over 60%, significantly higher than percentage projections for Germany, UK, France and even Italy.

Senior living developments, attractive, good quality housing aimed at active seniors looking for an independent lifestyle rather than nursing homes providing medical care, are well established in the USA and countries across Europe. In Spain however, this is another living sector in its infancy. Globally, the number of over 65s is set to double over the next three decades and Spain has many of the attributes that this age group demand: a welcoming climate, an affordable cost of living and an easy-going lifestyle. The potential for Spain to be Europe’s Florida for independent senior living, attracting a wide range of nationalities, combined with a lack of professional operators specialising in this sector, highlights the significant investment potential to enter the market at the ground floor.

The evidence shows that these sectors will continue to grow at pace. The emerging opportunities in the alternative living and BTR asset classes that AEDAS Homes and Neinor Homes can demonstrate, have a potential as golden as the Spanish sunshine.