The living sector consolidated its position as the main focus of real estate investment in Spain during the first half of the year, driven by alternative products such as flex living, student residences and senior living, as well as the affordable segment within residential rental. Investment totalled EUR 1,497 million, representing 27% of the total transacted in the market. This volume indicates a slight drop of 8% compared to the same period in 2023, according to data provided by CBRE.
At the end of the first half of the year, the most prominent product within the sector was flex living, with an investment of 708 million euros, representing 47% of the total transacted. This figure is three times the 240 million transacted in the first half of 2023. Investment was driven by the purchase of land for new projects and the conversion of office buildings. Madrid was the leading city in terms of investment, with 83% of the total volume, followed by Valencia, Malaga and Zaragoza.
The residential segment reached second place in terms of investment within the living sector, with 525 million euros, divided between the Build to Rent (BTR) rental model with 223 million euros and the Private Rented Sector (PRS) rental model with 301 million euros. Almost half of the investment in rented residential belongs to the affordable segment, representing 46% of the total.
Student residences registered an investment of 219 million euros, representing 15% of total investment in the sector, with all investments located in Barcelona. Of particular note was Morgan Stanley's acquisition of two student residences from the Vita Group, which together offer 624 beds. With investors looking for new opportunities, second tier cities with strong economic fundamentals are expected to become important destinations for future investment in this segment.
Although senior living is one of the least developed segments within living, it registered its first transaction of the year in Alicante, the province with the highest proportion of foreign seniors in Spain, representing 19% of the total. One of the main barriers to growth in this segment is the shortage of specialised operators, although demographic projections suggest significant expansion potential for this market in the future.
On the other hand, luxury residential, ultra-luxury, branded properties and serviced apartments continue to gain ground in the Spanish market. Javier Kindelan, vice president and head of living in Spain at CBRE, notes: "The boom in this segment is driven by the growing demand for luxury properties; the increase in foreign investment in the Spanish real estate sector and the strength of the tourism sector".
Prime residential yields remained stable in the second quarter, at 3.8% in Madrid and 4% in Barcelona. The market outlook is optimistic due to the increase in rental demand, the limited supply available and a 14% year-on-year increase in rents. Flex living has followed this trend, with coliving assets maintaining a 50 basis points difference with the multifamily segment. Student residences experienced yield compression, with a 10 basis point reduction due to strong investor interest.
Luxury residential, ultra-luxury, branded properties and serviced apartments continue to gain ground in the Spanish market.
The residential sales and purchases market is in a phase of moderate deceleration within the real estate cycle, although it has shown more dynamism than expected in the first months of the year. Demand increased by 1.8% year-on-year, with 161,000 homes sold in the first quarter, driven by the strength of the labour market and sales by foreigners. House prices have continued their upward trend, with an overall increase of 6.3%, and a notable difference between new construction, which grew by 10.1%, and second-hand housing, with an increase of 5.7%.
"Housing affordability remains one of the main challenges facing the residential market in Spain. However, the start of the decline in interest rates and the increase in household purchasing power have given a small respite to the rate of effort; this trend is expected to continue in the coming quarters. On the supply side, supply remains very low and far from covering annual household creation. Initiatives such as the one carried out by the Community of Madrid on changes of use of land classified as tertiary (offices) to residential use to implement subsidised housing will contribute to put more supply on the market", comments Javier Kindelan.
