Spain’s Rental Market Has Gold Mine Potential

26 October 2015 – Expansión

Spain is a country of property owners, in which less than 20% of homes are allocated for rent. That percentage is a far cry from the figures recorded in major European countries such as Switzerland, Austria, Denmark and Germany (where the rental market accounts for at least 35% of all homes). The rental market began to take off in Spain when the crisis forced thousands of families out of the market for buying properties and into the rental market, but it still has a long way to go.

Companies in the sector see this as a great business opportunity in Spain, according to comments made last week at the Barcelona Meeting Point trade fair. Demand exists and is on the rise, but the supply is scattered and lacks professionalism. In Germany, several companies specialise in the sector, with more than 100,000 homes for rent. In Spain, Blackstone has just 10,000 homes.

“Currently, tenants have to deal with amateurs and individuals; anyone that succeeds in becoming a professional manager of rental housing, with good services, will secured demand in a growing and unsatisfied market”, says Javier García-Carranza, Managing Director of Morgan Stanley in London.

The President of CBRE España, Adolfo Ramírez-Escudero, thinks that now is the right time to develop this segment. “Housing is cheap” for buy-to-let homes. García-Carranza says that the economic incentive to promote this niche in the market is to offer services that increase revenues thanks to their added value. “If we rely only on the appreciation of property prices, we will have a cyclical model, with less recurrent business”, he says.

The percentage of rented homes has risen from 11.4% during the real estate boom to 18% or even 20% according to analysts in the sector, although the Bank of Spain reports a more conservative figure of 15%. Therefore, 3.42 million of the 18 million primary residences in Spain are rental properties. If we also include holiday rentals, that figure increases to 5 million.

Prices, which are now more competitive than ever, have contributed to this situation. The average rental price amounted to €7.02/m2/month in September, i.e. 30% lower than in May 2007, according to the IESE-Fotocasa index. In September, rental prices increased by 1% YoY.

For example, rental prices in Cataluña increased by 2.5% during the first half of the year, for the first time since 2008. In Barcelona, the increase amounted to 6.9%, according to the Generalitat, which notes that the market is beginning to become saturated.

Changing attitudes

The changing mentality is here to stay In 2011, 70% of Spaniards believed that “renting meant throwing money down the drain”, but now 65% regard it as a robust life choice, according to a survey conducted by Fotocasa. “This is partly explained by the crisis and because the younger generations have a much more favourable attitude (towards renting)”, explained Beatriz Toribio, Head of Research for the website.

Another website, Idealista, predicts that the rental market will continue to gain strength over the next few years, to account for around 25% of the total market. “Despite the classic reluctance to rent in Spain, the rental market is now undergoing a period of significant development”, said Fernando Encinar, Head of Research at the company.

Original story: Expansión (by J.M. Lamet and A. Zanón)

Translation: Carmel Drake