Understand the key trends in Spain’s real estate investment sector, with a focus on Madrid’s impressive gross profitability for housing investments.
The Areas of Madrid with the Highest Housing Yields
The gross profitability of housing in Madrid currently stands at an impressive 4.5%, solidifying the city’s reputation as one of the most dynamic real estate markets in Spain. While the prime districts exhibit tighter margins, emerging neighborhoods and municipalities within the metropolitan area present enticing opportunities for astute investors.
Interestingly, gross profitability has experienced a slight decline of 2.2% in the last quarter; however, when viewed in year-on-year terms, it has remained relatively stable. A closer examination of the trends over recent years reveals a notable dip in returns attributable to the Covid-19 pandemic, followed by a resurgence that culminated in an all-time high of 4.7% in the third quarter of 2023.
Among property types, one-bedroom apartments yield the highest returns, boasting an impressive 5.9%, while two-bedroom properties follow suit with a respectable 4.5%. Conversely, four-bedroom homes see profitability diminish to 3.4%, as per data from the esteemed real estate big data platform, Brainsre. The gross income generated from renting properties in Madrid has exhibited an upward trajectory in recent years, reflecting a favorable market environment for landlords. This income, representing the total revenue before accounting for expenses such as maintenance, community fees, repairs, and tax obligations, underscores the increasingly advantageous conditions for property owners, particularly in recent quarters where rental prices have reached unprecedented heights.
A graphical representation illustrates the uninterrupted growth of rental prices in the Spanish capital since early 2021. Notably, the last two years have witnessed the most significant escalation in rental costs per square meter, with a staggering 23% increase over the past twelve months and a quarter-on-quarter rise of 6.2%. Currently, the average monthly rent for a home in Madrid stands at €2,028, a figure that underscores the ongoing rental boom.
This phenomenon is further evidenced by the remarkable momentum gained by the Build to Rent (BTR) model, a real estate development strategy focused on constructing buildings specifically for rental purposes, thereby generating a steady income stream through rent collection. Recent headlines have highlighted significant transactions within this sector, such as DWS’s sale of a build-to-rent asset in Ensanche de Vallecas to Catella’s CER III fund for €60 million, and Pryconsa’s delivery of three BTR developments to Vivenio, encompassing a total of 517 homes in the Community of Madrid.
Apartment Prices According to the Number of Rooms
In terms of rental prices, the average monthly cost for a two-bedroom apartment in Madrid is €1,977 (equating to €24.2/m²/month), reflecting a 20% increase from the previous year. The purchase price for such an asset is approximately €544,750. For one-bedroom flats, the average rent is €1,459 (or €26.6/m²/month), with a purchase price of €320,937, marking a 23% increase from last year when prices dipped to €22/m²/month.
Despite the high rental costs, Madrid remains a more expensive option compared to other Spanish cities. However, the initial return on these assets tends to be lower than the national average of 6.9%. This discrepancy arises because factors such as high demand, frequent property turnover, occupancy rates, and the risk of non-payment are not factored into this calculation. Nevertheless, these elements are pivotal in determining the long-term performance of investments, highlighting Madrid’s enduring appeal to tenants, driven by its economic and social dynamism.
When analyzing profitability by neighborhood, areas with more affordable housing prices tend to offer higher returns. For instance, neighborhoods such as San Cristóbal, Zofío, Entrevías, Amposta, and San Diego reported profitability rates of 12%, 10.7%, 9.5%, and 9.3%, respectively, at the end of the last quarter. In stark contrast, the lowest returns were observed in El Viso (3.4%), Vinateros (3.3%), Lista (3.2%), Recoletos (3%), Castellana (3%), and Jerónimos (3%).
The Madrid real estate market continues to evolve, presenting a complex tapestry of opportunities and challenges for investors. As the landscape shifts, remaining informed and adaptable will be paramount for those seeking to navigate this vibrant market successfully.
