The residential sector was more dynamic than expected during 2022, especially the first half of the year. However, rising borrowing costs have led to a slowdown in the market and reduced the pace of housing growth, according to the latest figures from the consultancy firm CBRE. "During 2023, the residential market will enter a slowdown phase, characterised by a significant reduction in sales and a stabilisation of prices. However, we expect this to be limited in time, especially with regard to the new housing market, which will continue to show good signs of dynamism," said Miriam Goicoechea, head of research at CBRE Iberia.
The residential investment segment accounted for 74% of total investment in Living with €904 million, of which €805 million was in built-to-rent (BTR) and €99 million in the Private Rented Sector (PRS). The interest in the affordable product and the volume of investment by the public sector stands out; 41% of the total investment in the residential rental sector was allocated to affordable and social housing. The public sector was one of the most active investor types with more than €109 million in transactions from January to March.
"The growing demand of households that choose to rent, whether for flexibility, mobility or as an alternative to buying a home in a context of rising borrowing costs, will continue to boost the rented residential segment and the institutionalisation of the housing stock in Spain. We expect the percentage of rental homes to continue to grow over the coming years, to represent 26.4% of all homes in 2026," said Goicoechea.
For their part, student accommodation remained the second largest asset class in the sector in the first quarter of the year, with a volume of €160 million (13% of total investment) with three transactions in the provinces of Barcelona and Valencia. Spain, with a bed provision rate of 6.7%, is the lowest in Europe. According to the report, 19,000 new beds will be added to the current supply of student residences by 2025.
Investment in Flex Living, which comprises new professionally managed and serviced temporary housing solutions, amounted to €154 million (13% of the total in Living), with Corporate Living accounting for 81% of the total volume and Coliving for the remaining 19%. Nine of the ten transactions recorded in the first quarter were between Madrid and Barcelona. The potential of this segment is based on the growing demand for a housing solution that has not been available until now. According to CBRE, the market for flexible space operators is highly fragmented, although consolidation has commenced. Senior Living did not record any transactional activity in the first quarter, its main limitation being the lack of specialised operators.
By product, luxury residential, ultra-luxury, branded and serviced apartment products are gaining ground in the Spanish market. This includes three types of assets: Luxury (homes with a prime location and a unique project), Serviced Apartments (luxury homes with a wide range of services) and Branded Residences (luxury homes associated with a brand). "In the European and international context, Spain is becoming increasingly attractive, competitive and unique compared to its equivalent cities such as Paris, London or Milan. The broad cultural and leisure offer, together with the excellent dining experience, are determining factors for the promotion of this segment. Nationally, projects are being seen in Madrid, Barcelona, the Balearic Islands and Costa del Sol," says Javier Kindelan, vice president and head of living at CBRE Spain.
Adjustment in prime yields across all products
"During 2023, the situation of uncertainty and rising interest rates pushed up prime yields. In Multifamily, investment activity in the residential rental sector is focusing on secondary locations and affordable product where the average yield is above 4% net. As for student residences and Flex Living, although investor interest remains high due to the large imbalance between supply and demand, the current environment has also pushed up prime yields," according to Goicoechea.