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The pandemic has altered the commercial real estate investment landscape, creating different types of assets according to the degree of disruption caused by the travel restrictions imposed to tackle the health crisis. Assets that have benefited include residential property, logistics assets and data centres, as well as a large proportion of retail assets. Among the most disadvantaged are offices and hotel assets, weighed down by the rise in teleworking and slump in international tourism.

The outbreak of the pandemic has changed the scenario for investment in retail-related property. On the one hand, severe mobility restrictions and social distancing measures have lowered prices and rents for commercial premises, reducing investor interest. On the other hand, COVID-19 has brought about a change in the habits of Spanish consumers that has benefited supermarkets, where investment reached record highs in 2020, and has accelerated the penetration of online commerce in the retail sector, boosting investment in the logistics required to support this sales channel.

Investment in the commercial real estate market fell sharply in 2023 as a result of the rise in interest rates. However, as 2024 progresses we can expect to see a revival in transactions, thanks to the anticipated fall in interest rates and an improvement in the fundamentals that determine the behaviour of the different segments. On the one hand, greater buoyancy in consumption will support the retail segment and the continued penetration of e-commerce will continue to require investments in the logistics segment. On the other hand, housing will consolidate its position as the segment attracting the most investment, and the hotel sector will continue to improve thanks to the strength of tourism in Spain. Finally, offices will continue to adapt to the new demands in terms of sustainability and the new forms of work that emerged after the pandemic.

Commercial real estate performed very well in the first half of 2022 but this situation is changing rapidly in the wake of the sharp hike in interest rates implemented by the ECB to curb the advance of inflation. All the evidence seems to suggest that office property may see the largest adjustment in valuation terms as this has the narrowest yields. Retail, whose valuations have already suffered several years of intense adjustment, could now become more stable than the rest of the segments. On the other hand, logistics assets, the star product lately due to the boom in e-commerce, may be more sensitive to any deterioration in the macroeconomic environment. Finally, we look at the co-living segment which has been attracting a lot of investor interest recently in Spain, especially in the case of senior living, a segment with very positive prospects considering the demographic outlook that will support demand in the medium and long term and the current limited supply.

Spain’s real estate market slowed in 2023, but more gently than anticipated. Despite the sharp rise in interest rates, several factors have supported the sector, including a resilient labour market, significant immigration flows, the imbalance between the short supply of new housing and the high demand, and the improvement in household finances. On the supply side, the stabilisation of construction costs has allowed 2023 to end with a similar number of new home construction permits to that of previous years. In the first half of 2024, we expect this gentle slowdown to continue, as interest rates remain high and the economic environment continues to show signs of relative weakness; however, in the second half, as the downward path of interest rates takes hold and economic activity gains traction, we expect the real estate market to regain more vigour.

Valuations of commercial real estate assets recovered significantly during 2024, driven by the shift in monetary policy and the reduction of market interest rates. Investment in the sector grew at an annual rate of around 20% and the living, hotel and retail segments were particularly dynamic. For 2025, it appears that most of the revaluations will have already taken place, as interest rates are already at levels close to the new equilibrium. Still, the sector will continue to attract investment opportunities. Spain is positioning itself among the most attractive destinations for international investment in commercial real estate, thanks to solid macroeconomic fundamentals that will remain attractive throughout this year.

The real estate market is one of the main channels through which monetary policy is passed on to the real economy. Tighter financial conditions are feeding through to mortgage interest rates and are cooling down the demand for housing. Given the notable tightening of monetary policy over the past year in many of the advanced economies, in this article we document the change in trend in international real estate markets and analyse the extent of the adjustment that may lie ahead.

The Spanish real estate market accelerated in 2024, especially in the second half of the year, largely thanks to the fall in interest rates. This was added to a series of factors that are keeping housing demand very dynamic, including significant migration flows, rapid job creation and strong foreign demand. On the other hand, the supply of new housing is beginning to awaken, but it remains insufficient to address the high demand. This mismatch between strong demand and scarce supply is driving up house prices – a trend that we expect to continue in 2025.

We use internal data to analyse the behaviour of foreign visitors who stay in Spain for long periods of time. This is a segment of the population that tends to stay in second homes, seasonal rental homes or specialist accommodation – segments that are experiencing rising demand in Spain’s real estate market.

The Recovery, Transformation and Resilience Plan (PRTR) for the Spanish economy could be an important catalyst for the real estate sector. With the help of European funds, the government plans to recondition half a million homes between 2021 and 2023, with the aim of improving their energy efficiency and thereby helping to achieve the agreed decarbonisation targets. The General State Budget (PGE) also proposes a notable increase in the funds allocated to increase the amount of rented social housing, a policy that is crucial as rents have become even less affordable for the most vulnerable members of the population.

Climate change represents a key challenge for the real estate sector and for the entire Spanish economy. In this article, we analyse the risks associated with extreme weather events and the transition risks which the sector must address, as well as the role of public policies.

Foreign purchases in Spain have made a surprisingly strong recovery after the pandemic-induced restrictions were lifted. Indicators related to purchase intent suggest that this positive trend will continue in the short term, especially among the German and Nordic populations. The long-term outlook for foreign demand is also promising considering the demographic trends in Europe: the imminent retirement of a large generation of Europeans points to a significant increase in potential demand, especially between 2026 and 2030. Although Spain has considerable strong points to attract this demand, such as the high competitiveness of its tourism industry and the country’s perceived safety, the importance of creating an attractive regulatory and fiscal environment, whilst also adopting appropriate housing policies to mitigate its impact on the local population, should not be underestimated.

Activity in the real estate market is recovering from its extraordinary slump between March and June. House sales and new building permits have regained much of the ground lost in Q3 2020, a trend we expect to consolidate in 2021. House prices, whose trend is still weak but without any extreme corrections, are expected to follow a similar trend in the coming quarters, ending 2021 with a decline of around 2%.

Extreme drought and rising costs have created a perfect storm that has nonetheless failed to dampen the high spirits of Spain’s agrifood exports in recent years. The decline in the volume of exports experienced by the sector, offset by the increase in prices, is the result of an adverse situation but the various competitiveness indicators look resilient and global market shares are still behaving very favourably. Even so, the sector must continue to invest in order to ensure its production becomes even more digitised, sustainable and competitive, a mission of vital importance given the huge challenge posed by climate change for the country.

The war in Ukraine has fuelled fears of shortages of certain essential inputs for the agrifood sector, as Russia and Ukraine are major players in the global supply of cereals, oils and fertilisers, among other commodities. It is therefore not surprising that, following the outbreak of the conflict, the prices of agricultural commodities rose sharply on international markets. This price hike has been passed on to the production costs of Spain’s agricultural sector, a net importer of fertilisers and animal feed, and is also having an impact on the food prices paid by end consumers. Nevertheless, the most recent developments (agreements to release part of the grain retained in the Black Sea and good harvests in other producing countries) have helped to stabilise agricultural prices and reduce the risk of a global food crisis.

The rental housing market has attracted a lot of attention in recent years. Its sharp price rises, much bigger than the increase in wage income, has highlighted the economic vulnerability of households living in rented accommodation. These households tend to have a lower-than-average income level and a high percentage of them spend more than 40% of their income on housing-related payments. To redress this worrying situation, much-needed economic policy measures have been taken to increase the supply of affordable housing. However, other types of policies have also been proposed, such as rent caps in stressed market areas, although their effectiveness is limited judging by experiences in other countries.

Foreign demand for housing in Spain has performed exceptionally well after the pandemic. In 2022, foreigners bought 90,000 homes in Spain, 46% more than in 2021. In line with this good performance, the number of mortgages taken out by foreigners also increased and reached 30,000 in 2022, so that one in three foreign buyers took out a mortgage in Spain last year. Foreign residents tend to buy homes and take out mortgages for a similar amount as Spaniards. On the other hand, non-resident foreigners tend to opt for more expensive properties and, consequently, the average mortgage taken out by foreigners is higher, although there are notable differences depending on nationality and autonomous region. The value of mortgages taken out by foreigners in the Balearic Islands is particularly high while, in terms of nationality, Swedes and Americans tend to take out the largest mortgages.

The interest rate hikes being implemented by central banks in order to combat inflation are leading to concerns regarding the impact such tighter financial conditions may have on real estate markets. In many developed economies, house prices have risen considerably in recent years, a trend that accelerated during the pandemic, fuelling fears of real estate bubbles. Given this situation, the authorities in several countries have implemented a series of macroprudential instruments to cool down their market. However, in Spain the risk of a real estate bubble appears to be contained.