There is a shortage of resi for rent in the Spanish market, delegates heard at the Why Iberia? Iberian Investment briefing, organised by Real Asset Media and Iberian Property, which took place recently at Nuveen’s headquarters in London.
“There is strong and growing demand for multifamily as an asset class, it is the new must-have in Iberia”, said Jorge Pereda, Iberia Residential Rental Manager, Grupo Lar. “Spain is still very far from the EU average, as only 25% of people rent, compared to 50% in Germany, 36% in France and 35% in the UK”.
Out of a total of 24 million homes, only 4.5 million are available to rent, which leaves a 1.1 million shortage to reach the 31% European average.
“There is a clear imbalance between supply and demand”, said Pereda. “In 2010 3.6 million households rented their homes, but now it is 4.5 million and is expected to reach 5.3 million by 2035, taking the percentage up to 28%”.
As the economic crisis bites, house prices remain high and rising interest rates make mortgages more expensive, more and more people will not be able to afford to buy and will have to rent.
“Yet as demand grows the available rental stock is decreasing”, he said. “That’s why rents have been increasing by 34.5% on average in the last five years, with some cities seeing increases of 20% in one year”.
Residential had already proved to be a very resilient asset class during the GFC, but now it presents even more opportunities.
There are challenges such as the cost of debt, but the fundamentals are strong, Pereda said: “There is room for developing more PRS projects and we see this as a great opportunity for us. Currently 58% of investment is going into multifamily, 28% into student housing and 14% into senior housing and care homes”.
In Spain regulations are delegated to the regions and there are 17 different local authorities to deal with, so it is important to have a local partner with people on the ground.
“In Madrid we have a business-friendly government that helps projects move ahead”, said Luis Roca de Togores, President, Valdecarros Community Council. “The regional and local government has taken a 36% stake in our project, which shows commitment and gives reassurance they won’t do anything to undermine it”.
The supply shortage in the Spanish capital is acute, as there is demand for 34,000 units a year but only 27,000 available stock.
Valdecarros is a “city within Madrid”, a vast development to the South-East of the city that will deliver 51,656 homes, over 28,000 of which will be subsidised. The €200 million investment also includes light industry, offices, a shopping mall and 7 million square metres of green spaces.