Four Questions with...Elaine Beachill, Head of Living Sectors, Capital Markets, Spain

Elaine Beachill, Director and Head of Living Sectors, is based in the Knight Frank Madrid office. Below, Elaine explores why Spain is emerging as one of Europe’s strongest Living Sector investment markets.

Q1: What makes Spain currently one of the most compelling Living Sectors investment opportunities in Europe?

Spain has built a strong macro-economic story and impressive GDP growth in recent years, with key cities across the country expanding quickly and demonstrating great resilience. 

The IMF forecasts that the Spanish economy will grow by 2.5% in 2025, well above the 0.8% expected for the eurozone, continuing the trend seen in 2023 and 2024, driven primarily by consumption and y foreign investment. 

Spain is expected to grow in 2025 and 2026 at a faster pace than the main economies of the European Union, such as Germany, France, the UK, and Italy, and well above the EU average. This momentum in the Spanish economy is driven by demographics, tourism, and exports.

Recent data show that Madrid where government policies are considered particularly pro-business represents a significant share of Spain’s GDP, standing out as a key economic engine for the country.  The Community of Madrid contributes close to 20% of the national Gross Domestic Product (GDP), underlying its position the economic motor of Spain.

Like a lot of other countries worldwide, Spain is currently facing a major housing crisis. The Bank of Spain’s recent report suggested a shortfall of 600,000 houses across the country. With an average of only 100,000 new homes built a year, the economic growth and population increase has meant that the shortfall between supply and demand keeps getting bigger.

Evolving demographic trends are also seeing attitudes to mobility changing more generally. People are moving around more for work and living alone which has created a demand for what we now call flex living.

There are many examples of investors like Greystar, Aermont, Bain Capital, Stoneweg to name a few, who have entered the flex living market, by  launching  the development of large-scale schemes on the outskirts of Madrid which has seen over 70% of investment activity in this sector The diversity of the residents - students, single professionals, divorced individuals, and older residents – has highlighted the demand and potential for further development and segmentation within this emerging sector.

Finally, and something I think is often overlooked; is the infrastructure we have. Spain has the largest network of high-speed trains in Europe, second only to China globally.  Having this robust infrastructure in place gives a solid foundation for additional housing in secondary cities, which can potentially offer better overall returns.

Currently, in Spain, average yields reported on the BTR market tend to be in the late 3%s to early 4%s depending on location.  In some key cities, there can be significant differences in yields, driven by factors such as demand pressure, local regulations and limited supply. Meanwhile, PBSA and Flex generally maintain a higher level, but are trending downards highlighting the continued appeal of this type of asset.

Q2: Where are you seeing the most exciting opportunities for growth across the living sectors, and what’s driving investor interest? 

In regard to student housing, we’re seeing an increase in the number of international students coming to Spain – an increase of 10% each year and growing.  This growth is driven primarily by private universities and in fact, Spain is home to three of the world’s leading MBA programs.  With the widespread shortage of student beds keeping rental growth strong and its counter-cyclical nature, student housing investment in Spain and across Europe is viewed as a good hedge against inflation.

Flex living is proving itself to be an attractive alternative to traditional BTR. Key flex schemes that have opened recently have shown the ramp up phase to be much quicker than perhaps expected. They offer residents additional value for money compared to traditional schemes given the level of amenities and services as well as efficient booking systems based on technology which reduce friction when signing lease contacts.

Development of traditional BTR remains constraint due to increasing land prices and inflated construction costs coupled with the competition posed by the ever out-performing of Build-to-Sell market.  However, we do expect to see Affordable BTR to take a leading role in the investment market over the short term made increasingly viable for investors when backed by government planning indicatives and European funding schemes. Affordable schemes offer scalability of long-term secure income and ESG fulfilment and are attracting new infrastructure players as well as traditional real estate investors.

Spain’s ageing population also presents significant opportunities in the still relatively undeveloped senior living sector. In additional to the opportunity to cater for the needs of the national population, Spain has the advantage of being a magnet for seniors from across Western and Northern Europe. It is aptly called the 'Florida of Europe' thanks to its climate, relatively affordable property markets, lifestyle and healthcare infrastructure.

In areas like Mijas, Marbella and Fuengirola, over a third - and in some cases, more than half - of senior residents are foreign-born. These locations are underserved when it comes to suitable housing for both Spanish residents and those coming from abroad

Q3:  What are the biggest challenges you see facing the living sectors in the next 5-10 years in Spain?

As with many other countries, a key barrier is the outdated planning system. Spain’s current national planning framework is over 20 years old, and whilst it has seen some revisions, it remains largely unfit in supporting new and emerging living models. 

Whilst the Madrid authorities have been extremely proactive in boosting the land available for Affordable living, planning in some areas of Madrid has become obsolete and there are still plenty of currently missed opportunities for regeneration where investors within the living sectors could help to provide solutions to the housing deficit allowing the city to develop in a more appropriate way akin to modern living.

Looking further ahead, there is a lack of suitable land for development and in some cases planning uncertainty. Escalating build costs and labour shortages in construction is leading to slower production and affordability issues. Even if the land was available, capacity to produce remains an issue.

A recurring challenge facing operators in particular is the lack of skilled staff across all the living sector asset classes. However, thanks to the broad range of hospitality skills gained from working in our tourism industry hopefully this is just a short-term challenge as the sector matures and offers new career opportunities.

With the senior living sector specifically, the lack of maturity in the market is reflected in the limited operational expertise available. At present, there are very few  active operators in the space. Whilst there are opportunities for overseas operators to come into Spain, it appears that a lot of operators are more focused on their current domestic operations as opposed to expanding internationally, giving rise to more local players who are seizing the opportunity to secure early market share and first mover advantage

Q4: What advice would you give to clients looking to expand their portfolios into the Spanish market?

It’s important to take time to find the right partner, choose resilient long-term models, and do not to be afraid of getting ahead of the curve in newer sectors and more niche locations. There are opportunities outside of Madrid within other rapidly growing cities which can potentially provide better returns. 

Although Madrid and Barcelona attract the bulk of investment, cities such as Valencia, Málaga, Sevilla, Bilbao, and Zaragoza are showing interesting growth in specific segments that can offer attractive returns, allowing for diversification.

For example, Valencia stands out in student housing due to its growing international student community and more competitive rental prices compared to Madrid or Barcelona as do other secondary locations supported by unmet demand. 

Outside of Madrid, Málaga, Valencia, Alicante and other coastal cities present interesting opportunities in flex living, driven by workforce mobility and the demand forsmaller, highly amenitised dwellings optionsfor young professionals and technological nomads.

One of the biggest opportunity areas for investors and operators to tackle is the affordability challenge and delivering housing suitable to the needs and financial capabilities of the mass market across the different living sectors.

As Spain continues to evolve socially, economically, and demographically, the Living Sectors present a compelling and increasingly diverse landscape for investors. 

From student and senior housing to the rising demand for flex living, opportunities are emerging – particularly for those willing to tackle early-stage challenges and take a long-term, strategic view. 

With cities outside of Madrid gaining momentum and the planning environment slowly catching up, Spain is positioned to be a key player in the next chapter of Europe's Living Sector growth story.

For more information on unlocking opportunities in the Living Sectors market, contact Elaine Beachill  or sign up to receive our latest insights.