Madrid, the second most attractive European city for real estate investment

Excerpt from Expansión, Rebeca Arroyo.

The Spanish capital takes the silver medal in the ranking of preferred real estate investment destinations, second only to London. Barcelona drops out of the 'top 10' and distances itself from Madrid.

Madrid continues to climb as the most attractive city for real estate capital, securing the silver medal in the ranking of the most interesting European destinations for real estate purchase or development, compiled by PwC and the Urban Land Institute (ULI) from 1,143 interviews with major industry players.

Madrid is considered a highly attractive city due to its economic growth, stable population, and reception of students, tourists, and immigrants, according to PwC.

Since 2020, the Spanish capital has climbed from eighth to second place, in an unstoppable rise, and is now just behind London, which tops the list, ousting Paris, which is in third. German cities, which had been declining in the ranking since 2021, are beginning to show signs of a gentle recovery despite concerns about economic developments in Germany. Munich, Frankfurt, and Hamburg rise to fifth, eighth, and ninth positions, respectively, while Berlin remains in fourth place.

Barcelona, now in 11th place, drops a notch and leaves the 'top 10', distancing itself from Madrid. This ranking considers cities with the most economic activity and best asset liquidity. Other Spanish cities mentioned in the report are Valencia, Málaga, and Seville.

By investment volumes by countries, the United Kingdom stands out, followed by Germany and France. Spain is the fourth-largest recipient of real estate investment, with about 11 billion euros between the last quarter of 2023 and the third quarter of 2024.

'Data Center', the king asset

The PwC and ULI report highlights that European real estate investors face 2025 with moderate optimism, focusing on operational businesses, such as data centers which remain the star asset with the most potential. Following them are new energy infrastructures, student housing, and logistics.

Thus, emerging businesses linked to major changes or digitalization lead, followed by those related to demographics (residential and health), compared to those linked to the economy or consumption, such as offices or retail, which are more lagging.

On the other hand, the study reveals that the European real estate sector is on the path to recovery after three difficult years, thanks to a context of declining interest rates and valuation adjustments, among other factors. Thus, 80% of respondents expect that by 2025 business confidence and profits will be as good as or better than the previous year, and nearly half hope to surpass them.

However, this widespread optimism does not come without significant concerns, not only because of the evolution of the European economy, which worries 77% of respondents.

Political instability

85% see political instability and conflicts in Europe and the Middle East as major sources of volatility. Thus, investor confidence - explain PwC - has deteriorated since the beginning of the year, and some respondents are more cautious, considering that recovery might take longer than expected.

Regarding threats associated with real estate, increasing regulation (74%), with a disconnect between Brussels and the sector, and rising construction costs (70%) are the two most frequently cited factors by interviewees.

Additionally, sustainability issues are one of the main challenges that the sector faces both in the short and long term. 70% are concerned about environmental issues, and 72% believe it will remain a relevant issue over the next five years. Artificial Intelligence (AI) is another trend impacting the real estate industry.

A vast majority also expects AI and machine learning to have a significant impact on all segments of real estate in the next five years.

Concern about insurance

Other relevant issues include a focus on management and concern about insurance, derived from rising premium prices, which are now the fifth-largest real estate expense and have increased the most in the last five years.

Miren Tellería, Head of Real Estate in Spain, assures that investors are increasingly focusing on fully integrated operational platforms to achieve a dual return, both in real estate performance and in operational business.

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