Spain is the second most-visited country in the world after France, with more than 80 million tourists a year during the pre-pandemic period. But Spain is much more than a tourist destination and offers interesting investment opportunities in addition to sun, beaches and leisure.

The recovery of the economy and the socio-demographic changes are driving new real estate needs in all sectors from residential to commercial real estate.

The quick progress of the vaccination campaign is allowing restrictions to ease, leading to a strong rebound of the economy. Oxford Economics forecast economic growth of 5.2% this year, rising to 6.4% in 2022. This is above the eurozone average, with Madrid leading the ranking of European Union cities' economic growth for 2022 with 6.7% GDP, fuelled by the recovery of private consumption and tourism and the increase in public investment boosted by EU recovery funds.

The COVID crisis has accelerated structural changes in the real estate sector. Tenant demand has risen steadily over the past few years, especially among young people, although the rentership rate, which was 23.8% in 2020, is still below the European average. In countries like Germany, the proportion of households in rented accommodation is double that in Spain.

More than 90% of residential stock in Spain is still owned by private owners but the growth possibilities of the build-to-rent sector is attracting institutional investors. This year, DWS invested €80m in a build-to-rent development in Barcelona in March which brings its build-to-rent portfolio in Spain to around €416 million. In September, Patrizia bought a build-to-rent development in Barcelona for €52 million which increased its residential AUM in Spain to more than €250 million. The same month, Greystar announced the acquisition of a build-to-rent residential asset in Madrid city centre with 455 apartments. Most investors focus their investment in Madrid and Barcelona but secondary cities like Valencia or Málaga are gaining interest.

New “living” types are required for a changing and ageing society where people that are 65 years old and above will represent 26.5% of the total population in 2035 versus 19.6% in 2020 and single-person households will represent 28.9% of the total in 2035 versus 26% in 2020. The undersupply compared with the rising demand across all demographic groups provide strong fundamentals for multifamily, senior living, coliving and care homes. The range of “living” products is broad and the possibilities are enormous in Spain where those different concepts are in their infancy.

The logistics sector has been outperforming in Spain, as in many other European countries.

Spain’s e-commerce penetration rate jumped from 5.4% to 9.9% between 2019 and 2020, underpinning logistics activity, with occupier demand reaching a new record high in 2021. Surging growth is expected to continue, as Spain is still lagging mature markets in terms of its retail online share, which is 40% below the European average.

Spain also benefits from its strategic location as a gateway to the European Union, North African, Middle Eastern and Latin American markets, and is improving its infrastructure and intermodal network. The main logistics activity is concentrated in Madrid and Barcelona but also in secondary cities like Valencia, Zaragoza, Seville, Bilbao and Málaga. The need for sustainability and efficiency is driving demand for different type of logistics facilities such as fulfilment centers, multi-storey centres and last-mile assets.

Office and retail sectors are facing a number of challenges, though the situation is improving. Welhelp, for example, in July leased 20,000 square metres (versus a planned 30,000 square metres ) in Barcelona after the freeze of the operation last year due to the pandemic. Office employment in Madrid and Barcelona is expected to rebound by 3% and 2% respectively this year and by 2.5% in 2022, fuelled by a gradual return to the office. However, employment growth may not translate directly into office take-up as many businesses are committing to a hybrid working model with a combination of remote and office-based work.

On the supply side, there is a lack of quality buildings in Spain able to respond to the actual needs of companies that are requesting the same standard of quality they can find in other mature European countries. Accenture, which is committed to achieving net-zero emission and zero-waste generation by 2025, has just announced the opening of its new headquarters (9,000 square metres) in a renovated building at Paseo de la Castellana 85 in Madrid where all the energy consumed comes from renewable sources, with LEED Gold and Well certification and connection for charging electric cars. The office is equipped with sensors generating information that allows predictive modelling and more efficient data monitoring related to sustainability. There are good opportunities for offices focused on quality, sustainability and employee wellbeing.

In the retail sector, as economic activity bounces back, retail sales are expected to increase by more than 4% in 2021 and 2022 boosting demand for retail space. Brands are resuming their expansion processes, and prime rents are likely to rebound in 2022. Dr Marten has chosen Barcelona to open its first physical store in Spain in September. Philip Morris opened its first Iqos store, also in Barcelona, while New Balance is strengthening its presence with a third store in Madrid.

On the investment side, high street and food-anchored assets are driving the investment activity as shown by the acquisition of Primor’s store at Puerta del Sol in Madrid by Bankinter for €80 million and several supermarket sale-leaseback agreements. The Israeli fund MDSR has bought a portfolio of 27 Mercadona supermarkets for more than €100 million while Realty announced the acquisition of seven Carrefour hypermarkets for €93 million in September.

The outlook is positive for retail parks, a format that has proven its resilience during the pandemic. Supermarkets and high street retail are expected to do well in Madrid and Barcelona, cities with an international dimension which will benefit from the mobility and tourism recovery.