Iberia Summit: BTR in Spain is ‘the best asset class to invest in’

The shift to renting in Spain is making BTR the most interesting asset class to invest in, delegates heard at Real Asset Media’s Iberian Investment Summit, organised in partnership with Iberian Property, which took place this week at Nuveen’s offices in the City of London.

Javier Martin, Senior Portfolio Manager, Nuveen Iberia

“Build-to-rent is the new formula for residential investment, as demand is high and scarce supply is leading to an upward trend in rents,” said Javier Martin, senior portfolio manager, Nuveen Iberia. “We’ve seen strong appetite from investors, who are raising capital and deploying new strategies to develop projects.”

In Q1 BTR investment in Spain reached €805 million, which is a record level. Madrid and Barcelona dominate the field, attracting 85% of the total, followed by Valencia, Malaga and Seville.

“BTR is the leading living sector, yet the total amount represents less than 8% of total developments in the housing sector,” said Martin. “The offer is very limited now, it’s a nascent market but there’s demand for high quality purpose-built residential.”

Several factors are driving demand for rented accommodation. “Inflation is reducing people’s purchasing power, while higher interest rates and tighter lending standards are leading to a shift from buying to renting,” he said. “There’a also a cultural change underway, as mobile professionals prefer to rent as they change jobs and geographical locations. But there’s a shortage of land for new developments and there is not enough supply.”

Whether the choice is driven by necessity or preference, more people are renting in Spain. The number of renters has increased by 49% between 2005 and 2021, and is expected to go up by a further 10% between 2022 and 2026, especially in the main cities. CBRE predicts that 26.4% of households will live in rented accommodation by 2026.

Source: Nuveen

There is a growing demand for smaller apartments, due to the rise in the number of single households, single-parent families and couples with no children.

Yet most accommodation available to rent is old BTR stock from the ‘50s and ‘60s. “The percentage of PRS owned by institutional investors is 34% in Germany and 23% in France, but only 5% in Spain.”

There is a lack of high-quality BTR operational stock due to development risk, yet rents are high because of the shortage of supply.

A pipeline of 55,000 new units is expected to come to the market in the next few years, 50% of which classified as subsidised rental housing. Madrid accounts for the vast majority – 28,000 units – followed by Barcelona with 3,300 units and Valencia with 1,800.

Nuveen believes in BTR’s prospects and has chosen to take development risk, becoming the second biggest investor in the sector after Avalon/Ares.

The group is investing €710 million to develop 3,000 units, with a five-year hold period and a 12% target return, 70% located in Madrid and Barcelona and 30% in secondary cities with strong fundamentals such as Valencia, Tarragona and Córdoba.

“TK Living is an affordable BTR platform, a unique product in the market,” said Martin. “It’s an innovative tenant-centric concept based on design, technology and ESG compliance, that includes office space, communal areas,  gym, terraces and outside spaces.”