Affordable housing: a megatrend to dictate Spain future “living” projects

Affordable housing: a megatrend to dictate Spain future “living” projects
Spanish Conference at MIPIM 2024

Before an audience of international investors and real estate players during MIPIM, the largest gathering of real estate investors and developers, the Spanish Conference, placed its focus on "Moving towards new urban developments and asset types".

The panellists of the conference organised by RocaJunyent and GESVALT focused on such important issues for the country as affordable housing, new housing creation, senior housing, housing accessibility, public administration, and much more.

Sandra Daza, Managing Director at GESVALT, was responsible for reviewing the most relevant indicators of the Spanish market in 2023, providing context on possible investment opportunities in Spain in 2024.

In a positive note, she anticipates a more dynamic year ahead for 2024. The residential sector maintained the trend of generalised price increases, although these have occurred at a more contained pace than in the previous two years. Rental values have raised more sharply, hiding the displacement of a percentage of demand that opt for this model due to the tightening of financial conditions, something that we expect to start easing this year.

According to Sandra Daza, the greatest investment opportunities at this time in 2024 are for Madrid, for Barcelona, Malaga, and Valencia. With residential being one of the preferred sectors among investors, attracting both private and institutional capital, the demand shift towards alternative models could lead to significant growth in flex living this year. And as for the BTR segment investment volume is growing year after year.

Regarding the office sector, investment volume in 2023 has contracted by 50% compared to 2022. Still, it has managed to take €1.25 billion, 11% of the total, to surpass the retail and logistics sectors. The prospects for 2024 are positive, supported by a possible adjustment in valuations.

The hotel sector has been the star performer. Investment volume has grown by 30% year-on-year to account for a third of total investment in the Spanish real estate market in 2023. Visitor forecasts for 2024 are expected to exceed those of the previous year, bringing confidence to both investors and major operators.

The retail sector also performed well. During 2023, the high street segment showed rent increases of 3% on average. On the other hand, rents have remained stable in both shopping centres and retail parks, although in both cases, there was a growth in visitor numbers and sales volume.

"Last year 35% of the housing was acquired without any financing, a figure that compares to 28% in 2022".

The Spanish housing markets registered an inflexion point, with significant contractions in both the volume of sales (nearly minus 10%) and mortgages nearly minus 18%, reflecting the impact of tougher financing conditions.
As financing was more expensive, there was a rise in the percentage of homes purchased without it, specifically 35% compared to 28% in 2022, showing buyers greater savings capacity.

New building permits remained stable with a slightly lower volume. And 2023 maintained the interest of foreign buyers with a year-on-year increase of 4%, a figure to continue to grow over the coming years.

In a roundtable discussion moderated by Roger Pla, Partner at RocaJunyent, the “living as a service” was explored in detail.

Spanish Conference - "Moving towards new urban developments and asset types".

With Spain demography moving towards an increased life expectancy movement, Amedeo Cesco, Senior Director at Azora, addressed the “tremendous” potential of senior housing, dividing it into two concepts: care home, and independent living. Being the senior considered people above the 65 years old mark, he explained that independent living is a choice, while care home is not.

Amedeo Cesco highlighted that the care home stock is currently around 400,000 beds in Spain, and there are roughly 10,000 people with more than 65 years of age, setting the ratio at around 4%. Of this total stock from 15% to 20% is in need for renovation, offering good investment opportunities.

On the independent living side, the Senior Director of Azora shared that the concept finds its routes in the US, where performance was quite good. The differentiational aspect lies in the sense of community complemented with premium services, being the access to healthcare a choice. Location plays a big part in these assets as “people want to stay where their kids are”, he explained.

One other asset class consolidating its status is flex living, the second most popular within the living segment, with an investment volume of €530 million in 2023, representing 18% of the segment. Practically all transactions were concentrated in Madrid, in Barcelona, and in Malaga. The average length of stay two years ago was 12 months and during 2023, this period has increased by an average of 50%.

For Bastiaan Grijpink, Managing Partner at Urbania, the so-called flex living fits in several models, like student housing, coliving, or cohousing. The common denominators are that it needs to be affordable, in the majority of the cases purposely built, deliver an experience concept in reduced space, and be built on non-residential land.

Developers are focused on locations where administrations understand the need to provide living solutions in tertiary land. “In Madrid, they saw this housing unblock opportunity, especially important given the Spanish process to urbanize land, which takes many years”, he defended. Also, “it is a great way to regenerate urban areas”.

In November last year, new urban planning regulations were incorporated into Madrid's general urban development plan. This includes recognition of shared housing, coliving and collective housing (co-housing).

For its part, Raul Blasco Terré, Director at Bialto, believes that affordable housing for rent is the main megatrend of all living segments in Spain. He started by reminding the audience that Spain is the 2ndEuropean country with the highest rate of effort of renting an apartment, an issue that in his words “needs to be addressed immediately”.

There is no doubt that the supply and demand are imbalanced, with demand expected to grow by 15% this will require 180,000 new households by year, of which 90% should be concentrated in the main metropolitan areas. “We are only building 100,000 units so we have a gap of 80,000 apartments per year. In Europe the affordable housing stock represents around 9% of the total housing stock and in Spain we are only at 2%, so there is room for improvement”.

Sandra Daza, Managing Director at GESVALT, concluded by recalling that the affordability issue should not just be tackled on the real estate side, employment, creation of income, and open dialogue with public administration are important areas to work in as well.

MIPIM is the right place to foster this communication and awareness, and although a lot is missing, we should not get the wrong idea that nothing is being done. On the contrary, take the built-to-rent segment as example: with 1.87€ billion of investment last year, 10,000 BTR units were delivered, maintaining the upward trendthat, apart from 2021, has continued in recent years. This is hugely significant compared to the 500 units that were delivered in 2019.

Energy efficiency and demand for sustainable real estate product were some of the other 2024 trends pointed out by the present experts.

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