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Outlook 2021: Build-to-rent in Iberia offers a ‘great opportunity’

There is strong demand and financing available for residential projects in Iberia.

The private rented sector (PRS) in Iberia has real potential, according to market experts. Their claim is backed up by the fact that last year a total of 60,000 units were delivered to the market, compared to 250,000 in the UK, 300,000 in Germany and 400,000 in France.

“The pandemic has speeded up trends and there’s a great opportunity for build-to-rent in Spain now,” says David Martinez, CEO of Aedas Homes. “The market is still small compared to other European countries, but there is no demographic justification for such a contrast.

“Young people don’t have a chance to save and get on the property ladder, so they will continue to turn to the rental market,” he adds.

Investors are showing an interest and raising funds to develop build-to-rent (BTR) projects, but there are still question marks about the market.

“Investors want certainty, not rules that keep changing, and that’s their concern in Spain and Portugal,” says Alvaro Otero, partner, corporate M&A, real estate & construction, hotels & leisure, at law firm CMS. “They tend to be strong on tenant protection and less friendly to landlords.”

Home working and health

The pandemic has also led to other changes in the residential market. The shift to home working has resulted in a need for more space, while the emphasis on health has increased demand for greener surroundings.

These shifts in demand are reflected in new developments. “We’ve seen a definite shift from multifamily to single family, detached or semi-detached houses,” says Martinez. “Before the pandemic developments were 80% multifamily, now in a year they have gone down to 70%, and people want outside space, gardens or at least courtyards and terraces.”

‘Before the pandemic developments were 80% multifamily, now they are 70%, and people want outside space, gardens or at least courtyards and terraces.’

David Martinez, Aedas Homes 

In Portugal the residential market is also evolving in this direction. “Outdoor space has become more important,” says Pedro Silveira, chairman of Grupo SIL. “A trend we see is people choosing to have a bigger house with a garden outside of town, being willing to do longer commutes as they only go to the office two or three times a week.”

But as not everyone can move to a detached house, demand for city centre apartments continues to outstrip supply. 
“In Lisbon it is difficult to get projects approved so supply is very constrained, we know our apartments will sell,” says Silveira. 

He adds that the architecture and layout of properties are changing in line with customers’ preferences. “Now people are spending more time in their homes, so for every project we talk to the buyers, the husband, the wife and even the children and adapt to introduce improvements in line with their needs. That adaptability is built into our DNA.” 

Bank support

Banks in Iberia are still the real estate sector’s best friends, according to experts. “Banks seem to be interested in financing microliving and student housing projects,” says Christopher Hütwohl, managing director of Corestate Capital Advisors. “We’re recapitalising parts of the portfolio to create joint ventures with partners and we’re finding project finance from banks. The market for us is very accessible.”

Banks take an asset-by-asset approach, acting with great prudence, but they are still willing to lend to good projects. Hütwohl adds, however: “We find that family offices and private investors are a lot more cautious now, because some have been hit badly by the crisis.”

Above and top: Aedas Homes’ Azara project in Alicante reflects good fundamentals for residential and demand for outside space


“Financing is not an issue, but banks are more selective,” adds José Araujo, director in the specialised credit & real estate department at Millennium BCP. “Retail and tourism are less easy to finance now, but funds for residential are always available.”

Given the demand for housing, financing residential projects is seen as a safe bet, provided some conditions are met. “Banks are more prudent and ask for more equity,” says Silveira. “We’re looking at different kinds of financing, like pre-buying apartments at a discount with a re-call option, starting a real estate fund that sells units to developers and also partnerships with a preferred dividend payment. But to tell the truth banks remain our best partners.”

The market now offers different options of alternative financing. “Retail banks in Spain are less keen to finance developments, so we are looking at all options,” says Martinez. “We’ve issued commercial paper, we may issue a bond later this year and we’re also looking at alternative financing. The market is in very good shape.” 

‘In Lisbon it is difficult to get projects approved so supply is very constrained, we know our apartments will sell.’ 

Pedro Silveira, Grupo SIL

The market is in good shape also because there is a widespread belief that the crisis will pass. “I don’t think the Spanish economy will take a very deep dive,” notes Hütwohl. “Investors are not turning away and institutional money is coming our way. There was a dip, but there will be a recovery.”

The positive sentiment extends to Portugal as well. “It is a niche market but investors are still looking for opportunities and prices are still competitive,” says Araujo. “Portugal will recover for sure.”

Grupo SIL’s Porto Cruz mixed-use project in Lisbon
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