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Why Are Rental Prices Soaring In Madrid & Barcelona?

17 October 2016 – Expansión

The real estate recovery has led to a boom in rental prices, which has attracted thousands of investors and savers. Buying an apartment to put up for rent represents a low risk, high return investment, which is a very unusual thing at the moment, verging on the edge of “the liquidity trap”. For this reason, rental prices are soaring in the major cities, above all in Barcelona and Madrid, the two lungs of the Spanish residential sector.

Rents in the Catalan capital cost, on average €17.4/sqm/month, up by 18.5% compared to a year ago. In Madrid, rental prices have also risen sharply, by 14.6% with respect to the third quarter of 2015, to €13.8/sqm/month. As such, rents in Madrid are now 20.7% cheaper than those in Barcelona.

However, rents are now more expensive than ever in both cases, including during the years of the real estate boom. In Madrid, the rents previously peaked at €13.4/sqm/month in June 2008 (€0.4/sqm/month lower than today) and in Barcelona, the figure peaked at €14.2/sqm/month, well below the current prices.

All of these findings come from the latest report published by Idealista, based on data at the end of September and an analysis of 63,817 second-hand homes across Spain. In July, August and September, residential rental prices grew by 10.7% YoY and decreased by 3% QoQ, taking the price per square metre per month to €7.6. Rental prices rose in every autonomous region with the exception of the País Vasco.

For Fernando Encinar, Head of Research at Spain’s largest real estate portal “the opening up of the mortgage tap and the high returns from rental properties are turning the sector into a safe haven for small and medium-sized savers”. (…).

Barcelona is the capital city with the highest rental prices in Spain, well above all of the others. And rental prices there are increasing at a rapid rate. In the last three months alone, rents have increased by 7.7% in the Catalan capital, from €14.6/sqm/month to €17.4/sqm/month.

The quarterly increase in rental prices in Madrid amounted to 5.3%, from €13.1/sqm/month to the aforementioned €13.8/sqm/month. A year ago, that figure stood at €12.1/sqm/month.

In the ranking of capitals, Barcelona and Madrid are followed by San Sebastián (€12.8/sqm/month), Palma de Mallorca (€11), Bilbao (€10.7) and Vitoria, Málaga and Las Palmas (all €8.1). At the bottom end of the table are the cities of Lugo (€4.1/sqm/month), Ourense (€4.2) and Cáceres (€4.3).

Julio Gil, Chairman of the Foundation for Real Estate Studies, thinks that there we are seeing a natural shift from ownership to rental, which makes the rental market more expensive. “The homes up for rent in Madrid and Barcelona, which are mature markets, are still the same more or less, but there is now a lot of (new) demand from emancipation, which means that owners are raising prices”, he added. “The growth in supply is much lower than the growth in demand”, said Gil. This explains why the increases are so acute in Barcelona and Madrid.

Rental prices in Barcelona are increasingly more appealing for investors (and increasingly less so for tenants). Nine of the city’s ten districts saw prices rises in the double digits during the third quarter of the year and three of those exceeded 20% YoY. The main rises were seen in Gràcia (+24.6%), Sant Martí (+23.3%), Eixample (+22.3%), San Andreu (+19.5%) and Sants-Montjuic (+19.4%). Moreover, six districts in the Catalan capital have not only recovered the ground lost following the burst of the real estate bubble, they are now at historical highs. For example, rents have never been so expensive in Ciutat Vella (€19 euros/sqm/month), Eixample (€18.8), Sant Martí (€17.5), Sarrià-Sant Gervasi (€17.5), Gràcia (€17.2) and Horta Guinardó (€12.6). (…).

Original story: Expansión (by Juanma Lamet)

Translation: Carmel Drake