Higher demand for rental housing and other trends for 2024

Residential assets will continue to be a favourite choice for domestic and international investors due to their robust nature in any scenario and their long-term appreciation potential.

Gesvalt has published its latest Real Estate Trends Report for 2024. The study carried out by our Research Department estimates that the fall in the number of home sales, which was close to 10%, and mortgage concessions, almost 20%, towards the end of 2023 will continue into early 2024. This is aside from potential positive evolution in certain territories, resulting from any activation that comes from demand awaiting a fall in prices.

Within this context, our experts point out that the main challenge for the Spanish residential market during 2024 will be on a macroeconomic level. In particular, the evolution of interest rates will have an impact, with certain relaxation expected should inflation finally fall below 2%. This could favour a reactivation of the market, mainly within the private buyer segment.

In this sense, we expect house prices to continue their upward trend in 2024, albeit at a more moderate pace. We also point to sustained growth in mixed and variable interest rate mortgages. The ratio of this type of financing, which has already gone from 32.6% of the total in January 2023 to 46.8% in November of the same year, could even surpass fixed-rate mortgages during 2024.

In addition to rising house prices and tightening financing parameters, there is also the issue of a shortage of affordable housing in Spain. Demand for this type of asset has continued its upward trend and is expected to increase further in 2024. In fact, the private real estate sector has called for a more stable scenario by way of a State Pact that would help deliver predictability and confidence measures in land management, update subsidised housing modules and reduce bureaucratic deadlines in construction processes, among other aspects. Estimates suggest our country would need to build more than 65,000 affordable homes per year in order to cater for the demand, in comparison to the below 10,000 per year currently being developed.

The current financing conditions, coupled with the continuing upward trend in house prices and the progressive decline in sales and purchases, point to a shift in demand towards the rental market, which will experience a key year in 2024. This is both due to an update on rent increase limitations, to 3% as opposed to the 2% in 2023, and the establishment of the reference index for future annual updates of rental contracts, drawn up by the INE (National Statistics Institute).

Considering these factors alongside a limited supply, our data suggest that the rental housing process could well become a drawn-out process over time, while other living arrangements such as short-term room rental or co-living may see an increase.

The legal framework will be a fundamental factor in estimating the potential investment in the Spanish residential sector in 2024. The entry into force of the new law on the right to housing, and the possible declaration of high-stress areas in the different autonomous communities has led to a degree of uncertainty which Gesvalt hopes will be cleared up as 2024 progresses.

Despite the complex nature of the current context, residential assets have shown to be both solid and stable, as well as showing long-term appreciation potential to position them as one of the primary investment options for both domestic and international investors.

In any case, in order to make investment estimates on both corporate and individual levels, monitoring exchange rates will be crucial in the coming months, as will the response of potential buyers. Macroeconomic forecasts point to an improvement in the global scenario, including the fiscal impulse from the NGEU programme or the reactivation of the European economy, aided by easing inflation and a progressive relaxation of financing conditions throughout 2024. In turn, this could lead to an improvement in the Bank of Spain’s projections for the coming years, which are 3.3% in 2024, 2% in 2025 and 1.9% in 2026.

Omni-channel wins over e-commerce and boosts retailing

The retail sector is gearing up for a 2024 marked by the renovation and refurbishment of a significant percentage of shopping centres and commercial spaces in order to adapt to the new omnichannel commercial strategy that has seen online commerce act as a complement to attract customers to physical spaces.

Retail investment in Spain is down 75% in 2023 to €1bn, following a 2022 that reached highs not seen since 2018. However, our report highlights that investment appetite in this segment remains high, despite being restricted by the scarce supply of premises in prime locations which limits the number of transactions despite high operator demand.

Food has proven to be one of the strongest segments in 2023, with the opening of 850 new supermarket and food retail stores, which will continue to attract the attention of investors. On the other hand, the luxury sector has shown impressive resilience to the macroeconomic context, thanks to an ability to retain traditional customers and incorporate new consumers and technologies. That said, we believe it could boast even greater potential should it successfully enhance its online capacity or achieve better integration with high-end tourism, especially in Madrid, Barcelona and Marbella.

The report also points to “Recommerce” or the trade in second-hand goods as one of the main retail trends for 2024. More and more brands are moving towards a more circular market approach, incorporating resale into their business model both through online and offline platforms.

Difference in price expectations weighs on the office sector

There has been a 50% contraction in investment in office space in 2023 compared to 2022, at 1.25 billion euros, a figure not seen since back in 2013. In geographical distribution terms, Madrid and Barcelona accounted for 94% of total investment, with the capital city taking 67% and Barcelona 27%.

At Gesvalt, we would highlight the lack of balance between the prices investors are willing to pay and the prices owners are looking to attain as one of the main reasons for this decline. Similarly, the consolidation of remote work is another of the primary causes of the current situation in the office sector. This will continue to condition workspace, with investors looking for less surface area and more flexible and collaborative spaces. That said, office-based work has regained ground in Spain, with the average in our country sitting at 3 days a week, compared to the European average of 1.8 days.

Logistics set to reinvent itself for B2B e-commerce

The logistics segment comes into the year 2024 following a 50% contraction in logistics investment to 1.1 billion euros, due to decompressed yields and increasingly expensive financing.

In this context, besides the rise of direct-to-consumer e-commerce, there has been a rise in the trend of B2B e-commerce with the emergence of marketplaces or subscription models directed at business customers. Synchronising logistics centres with online sales platforms will be fundamental in order to offer the best experience. To achieve this, Gesvalt expects there to be a reinforcement of the supply chain by 2024, supported by real-time visibility and process automation, as well as a rise in the use of Artificial Intelligence.