The impact of COVID-19 on commercial real estate investment in Spain

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.

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August 24th, 2021
The pandemic is altering the attractiveness of different real estate assets

Before the outbreak of COVID-19, investment in offices and hotel assets was by far the most important in the Spanish commercial real estate sector: accounting for almost 50% of the total between them. The commercial residential segment (multifamily properties, which includes rented accommodation as well as student housing and care homes), retail and, above all, logistics, were secondary.

But the pandemic has turned real estate investment on its head and caused it to fall by 24%, down to around 9.5 billion euros.19 The particular features of the health crisis led to the imposition of restrictions on national and international travel and also on certain economic activities, altering the attractiveness of the different assets that make up real estate investment in our country. Broadly speaking, some retail assets, the logistics sector and residential assets have been less affected or are even at an advantage. The first have benefited from the role played by supermarkets as suppliers of basic goods for the population; the second, due to the rise in e-commerce and the third, because of a combination of more heterogeneous factors. Interest in student housing has been tempered by the expansion of online classes while care homes have suffered first-hand from the impact of the healthcare crisis. However, residential lets have been given a new lease of life by build-to-rent initiatives and it is evident that the trend for care homes will continue to rise, given the country’s demographic fundamentals.

  • 19. The data on the volume of investment in CRE come from the Spain Real Estate Market Outlook 2021 by the international real estate consultancy CBRE.
The pandemic has altered the attractiveness of different real estate assets.

Residential property, logistics assets and data centres have benefited while offices and hotels have attracted less investment.

At the other end of the scale are what, before the pandemic, had been the star assets of the Spanish market: the appeal of offices has plummeted due to the growth in teleworking; commercial premises (historically one of the most important segments in the retail sector) were greatly affected by the limitations on opening hours, capacity, etc. (more or less strict depending on the region) and hotels suffered the consequences of rock-bottom demand.

As a result, in 2020 residential properties became the main investment asset (28% of total real estate investment), followed by retail (about 25% of the total) and logistics (almost 15%), while investment in offices and hotels remained below 20% of the total.20

  • 20. The data in this Report come from various market studies, conducted by CBRE and JLL among other key players in the commercial real estate market.
Compared with Spain, Europe’s offices withstood the impact of the pandemic

better while the retail segment was hit harder. Hotels are losing share while logistics centres are making similar gains in both markets.

If we compare the trend for real estate investment in Spain with that in Europe, we can see that, on the continent, the fall in office investment has not only been smaller but that, after the impact of the pandemic, it continues to be by far the main commercial real estate investment (almost 35% of the total), thanks to the recovery in the second half of the year in the region’s major financial centres (Germany, the United Kingdom and Netherlands). On the other hand, the relative weight of the retail sector in Europe decreased compared to previous years, in this case harder hit by restrictions on travel and business. In any case, there is a common trend in Spain and Europe: the boom in the logistics sector (associated with the increased penetration of e-commerce) and the deterioration in assets associated with accommodation and hotels, severely impacted by the restrictions on international travel.

The relative weight of retail real estate investment in Spain is increasing

Breakdown of real estate investment by segment (% of total commercial real estate investment)
The relative weight of retail real estate investment in Spain is increasing
Source: CaixaBank, based on data from CBRE.
Interest in residential assets has picked up

In 2020, investment in the commercial residential segment, which comprises rented accommodation as well as student housing and care homes, rebounded to €2.6 billion, more than doubling the investment made in 2019. We expect this increase in residential investment to consolidate in the next few years, given that the supply of this type of asset is limited in the Spanish market, especially when compared to other similar European markets, and because the demand for rented accommodation continues to rise gradually, reaching around 4.3 million homes in 2020, about 23% of the total (significantly less than the EU average of 30%).

Residential assets have attracted a lot of interest in the wake of the pandemic,

a trend we expect to continue given the shortage of supply and growing demand.

Increasing demand and a shortage of supply have boosted the investor appeal of residential properties at a time when build-to-rent initiatives are beginning to spread in Spain. In fact, public-private initiatives to increase the supply of rental housing are emerging and will increase thanks to the support of European recovery funds. On the other hand, one of the factors limiting investment in the sector is the intention to control rents and intervene in prices.

There is room for the rental market to gain share in Spain

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Logistics assets are no longer the ugly duckling of CRE

The logistics sector was one of the most resilient in 2020, especially with regard to the rental market. Investment volume in 2020 was better than expected at around 1,428 million euros and it is expected to reach a new all-time high in 2021. Behind the good data in this CRE segment lie the effects of lockdown, resulting in an unprecedented upturn in e-commerce and an inevitable boom in proximity logistics, causing high investor interest in last-mile assets in cities with more than 100,000 inhabitants, a trend that will continue over the next few years.

Logistics assets will once again perform well in 2021

thanks to e-commerce becoming part of Spanish consumer habits.

On the rental side, prime rents in Madrid (€5.50/m²/month) and Barcelona (€7/m²/month) remained stable in all logistics markets in 2020, a trend that is expected to continue in 2021. Such stability may be surprising considering the high demand but this effect has been offset by the extra supply entering the market.

The sector is expected to perform similarly in 2021, especially since e-commerce has become established in the consumption habits of a large proportion of Spanish consumers. In the medium and long term, the challenges faced by Spain’s logistics sector include achieving greater automation, promoting greater efficiency in last-mile logistics (bringing packages closer to the end consumer) and placing more importance on sustainability and job quality in the sector.

Investment in logistics could reach new highs in 2021

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Supermarkets and shopping centres keep commercial real estate investment in retail afloat

According to the real estate consultancy firm JLL, retail real estate investment increased by 40% in 2020 in the Spanish market, totalling 2.25 billion euros. This is a surprising figure given the backdrop of severe restrictions on face-to-face trading and it is possible that much of the increase is a correction effect following the particularly low investment volumes in 2019. If we compare this figure with the average of the previous three years, we get a 30% drop in retail real estate investment in 2020.

Across the different types of asset, shopping centres accounted for most of the real estate investment with a volume of around 1.1 billion euros, although 80% of this figure is due exclusively to two large transactions (Intu Asturias and Puerto Venecia) which were negotiated and closed at the beginning of 2020, before the outbreak of the pandemic. In other words, if we exclude these transactions, the level of investment would be the lowest since 2013.

This was followed, in volume terms, by supermarket investment, posting an all-time high in 2020 with an investment of around €600 million, accounting for 30% of all retail real estate investment when, between 2017 and 2019, it barely represented 5%-10% of the total. Its success is not surprising: it is one of the sectors that has come out of the health crisis the strongest, thanks to its role as a supplier to the population.

On the other hand, commercial premises, especially in the textile, leisure and restaurant sectors, were the worst affected among real estate assets. Firstly, they have been particularly affected by the restrictions (on capacity, time limits and forced closures) and by lower tourist arrivals (–77% in 2020). Secondly, the pandemic has speeded up the growth in online shopping, causing some oversupply of retail premises.

Supermarkets and shopping centres led investment in 2020

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On the other hand, returns on real estate assets declined across the board throughout 2020 as a result of the pandemic. The lack of buyers and the economic recession resulting from the health crisis have pushed up vacancy rates and the availability of premises, as well as triggering turnover among operators. Not only have small stores closed but big brands have also reduced their physical stores while boosting e-commerce. As a result, according to JLL data from the end of 2020, high street prime rents (premises of 100 m2 or more) fell by 16% year-on-year in Madrid and 18% in Barcelona. Prime rents in shopping centres and retail parks in Spain also fell throughout 2020 but to a lesser extent, with decreases of between 10% and 12.5% year-on-year.

The need for connectivity boosts interest in data centres

Finally, the expansion of 5G and fibre optics and the increased penetration of new digital technologies such as the Internet of Things (IoT) and cloud computing have been closely linked to some of the consequences of the pandemic (such as the rise in teleworking), in which connectivity has clearly become vital to ensure our professional and social lives can continue. In this respect, there is growing interest among investors in an increasingly attractive commercial asset, namely data centres. In the case of Spain, its geographical position, new connections via underwater cables with America and Africa, good connectivity and the high penetration of renewable energies are driving new developments of this type of property. In fact, in 2020 investment in such centres soared by more than 20% annually.

The expansion in teleworking reduces the appeal of office space

Investment in the office sector fell by 53% in 2020 compared to the previous year and 47% compared to the average for the previous four years (2015-2019). Similarly, demand for rented office space fell by 42% in Madrid (334,000 m2 of occupied space) and by 64% in Barcelona (140,000 m2). Taking both economic hubs together, office occupancy plummeted by more than 50% year-on-year to lows similar to those of 2009 and 2012, these being due to the financial crisis and sovereign debt crisis, respectively. It is worth noting that office occupancy in both Madrid and Barcelona had remained more or less stable in the five years prior to the pandemic (see the chart below), a far cry from the levels before the 2008 financial crisis. On the supply side, vacancy rates increased over the past year (by 11% in Madrid and 8% in Barcelona), thanks to the completion of some projects under construction and a return to the second-hand market, with contracts being renewed but with a reduction in floor space and subletting to adapt to the lower demand.

Slump in leased office space

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Importantly, the pandemic has served to accelerate trends that had already been observed in the office sector. Traditionally, Spain’s teleworking rate was among the lowest in Europe:21 3.2% in 2019 compared to 9.9% in the EU, according to Eurostat. Once the pandemic is over, there can be little doubt that fewer people will be working in offices than before COVID-19, so the demand for physical space by companies will be structurally reduced, albeit not drastically or suddenly. However, a number of factors can be perceived that will help to mitigate this lower demand for office space.

  • 21. See the article «The COVID-19 outbreak boosts remote working» at:
The pandemic has accelerated the adoption of teleworking

and this may lead to a major change in the type of offices in demand.

Firstly, although the number of teleworking hours may increase, the offices of the future22 will have to cope with peaks in attendance (central days of the week) while avoiding the opposite: having too much unused space on less busy days (Mondays and Fridays). Secondly, it seems obvious that social distance per worker will need to increase in the short/medium term as a consequence of the behavioural changes brought about by the pandemic. This is a radical departure from the pre-COVID world, when the trend was towards high density. Finally, offices will have to be redesigned to adapt to a new way of working that combines remote and face-to-face work, increasing the space dedicated to collaborative areas and services and thereby offsetting the fact that less space is required for individual workstations. In this respect, companies have become more interested in so-called flexible properties (dynamic business centres that adjust to the needs of companies) in the past year, with transactions in this segment up by 85% in Q1 2021 in Madrid and Barcelona, according to data from the real estate consultancy firm CBRE.

Given these opposing forces, demand for office space is likely to diminish in the short to medium term although a significant or worrying decline is not expected. In fact, this is a trend that was already expected before the pandemic and would have occurred anyway, albeit over a longer timeframe.

For the second half of 2021, we therefore expect the vacancy rates observed during the toughest months of the pandemic to moderate although they will remain below the figures of previous years. In terms of rents, the current weakness in demand suggests they will continue to adjust downwards through 2021 before recovering from 2022 onwards as demand picks up more significantly.

  • 22. For a historical overview of the trends for office space, see «The office of the future: a return to the past?» at
Investor interest in hotel assets will increase in 2021

There is no doubt that, in a country like Spain where tourism is so important, the hotel sector has been one of the hardest hit by the restrictions on travel, both local and international. This has led to a sharp decline in demand (overnight stays fell by 73% in 2020), supply (–40% of establishments open) and profitability (–57%, according to the RevPAR index). In terms of real estate transactions, investment in hotel assets fell by 61% in 2020 to around 950 million euros, according to CBRE. Although these are the worst figures since 2013, when the economy was still digesting the financial and debt crises, the data are not surprising given the high uncertainty regarding the sector’s recovery; with administrators and owners being more concerned about rent renegotiations, safety protocols and the day-to-day management of the costs of their assets, and with buyer and seller expectations being so far apart.

Hotel demand almost zero, except for the summer, with supply at 50%

Overnight hotel stays in Spain

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Supply of rooms available

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As for 2021, the success of the vaccination campaign in Spain and in its main European source markets for inbound tourism, together with the launch of the EU’s digital COVID certificate, suggest greater domestic tourist mobility and the arrival of a larger number of international tourists (although we do not expect a quick return to the figures achieved in 2019), which will help to improve activity in the sector. However, as was already the case in the summer of 2020, the recovery will occur at different speeds: the fastest should be rural tourism, which is less crowded and less dependent on international tourists, followed by city and island beach destinations, which are particularly reliant on foreign tourist arrivals, and lastly the corporate and events (MICE) segment, displaced by teleworking and online meetings thanks to the expansion of standardised technologies throughout the pandemic.

Hotel assets have been among those hardest hit by the pandemic,

but their outlook is positive thanks to the revival in tourism.

Moreover, the evidence suggests that the positions taken by property owners and investors will get closer in 2021. Regarding existing hotel asset owners, the strain on cashflow built up over the last year and a half and the end of rent moratoriums could force some hotel owners to divest their assets in 2021. On the investor side, the continued strong interest in the Spanish hotel sector is in addition to an environment of low interest rates, high stock market volatility and lower returns on other Commercial Real Estate (CRE). In Q1 2021, several major deals were finalised, worth around 230 million euros, and investment is expected to burgeon in the second half of the year once travel restrictions are lifted and the tourism sector starts to recover. Although a correction in prices is inevitable given the circumstances, investor confidence in Spain’s tourism industry will make it possible for discounts on operations to be contained to some extent, at least in those considered to be the most prime or strategic.23

By way of summary, we can highlight the following general trends regarding the impact of COVID-19 on CRE investment:

  •  The real estate assets generating the most interest among real estate investors are those that have been most resilient or least affected by the consequences of the pandemic: residential real estate (known as multifamily assets), logistics (associated with the e-commerce boom) and data centres (due to growing connectivity needs), as well as some retail real estate assets (mainly supermarkets).
  •   On the other hand, demand is subdued and investor interest limited in those assets hardest hit by the consequences of the pandemic: the rise in teleworking has reduced demand for offices, a trend that will continue as the penetration of teleworking in the Spanish labour market increases, while hotel assets have been affected by limited local and international travel, an aspect that will reverse as travel gets back to normal.
  • 23. Prime rent refers to the most exclusive commercial zones with the highest demand.