The commercial real estate market went through a difficult phase between 2022 and 2023 as a result of the sharp increase in interest rates. The tightening of financial conditions has a direct impact on investment in real estate assets in the commercial segment, since high interest rates make investment in this type of asset less attractive than alternative, risk-free investments (the Spanish 10-year bond exceeded 4% at the beginning of Q4 2023). The slowdown was evident in 2023: investment in commercial real estate fell by 35% compared to 2022, a year in which activity was particularly strong, as investments postponed during the pandemic finally materialised. However, when we compare the 2023 figure with pre-pandemic levels, the decline remains significant, as it stands 20% below the average investment during the period 2015-2019.²¹ Obviously, since the factor that weighed down investment was common throughout Europe, the decline in investment was similar across the region’s various economies, although the Spanish market was relatively less affected, whereas the declines in France and Germany were particularly severe.

In contrast, the reduction in valuations was modest in 2023, down just 1.1% year-on-year in the cumulative period of the first three quarters of the year, according to the commercial real estate index published by the Bank of Spain.²² In other words, despite the collapse in investment, assert prices remained fairly stable, reflecting the difficulties encountered in 2023 in achieving a balance between supply and demand in a context in which the cycle of reference interest rate hikes was both rapid and steep (cumulative increase of 450 bps between July 2022 and September 2023).

At the end of 2023, however, the decline in inflation in developed economies was consolidated, fuelling expectations of interest rate cuts during 2024.²³ Furthermore, the abundant liquidity and the interest that Spain’s real estate market continues to arouse should allow investment to recover as the year progresses. In any case, expectations for the various market segments differ, so below we review how the different asset categories have performed in 2023 and assess their outlook for 2024.

The retail segment was the worst performing segment of all during 2023, with investment falling by an annual rate of 70%.²⁴ The tightening of financing conditions and, above all, the upturn in inflation led to a moderation in household spending between 2022 and the first half of 2023. According to CaixaBank Research’s real-time consumption indicator, in-person card spending went from growing at rates of 9% year-on-year in Q1 2023 to moderating to rates of 2% in October, before regaining some vigour beginning in the final quarter of the year.²⁵ By distribution channel, single-premises shops and small chains have been the hardest hit in the post-pandemic period, while sales in department stores and, above all, large chains have exceeded pre-pandemic levels.

The 2024 outlook for this segment is favourable. At CaixaBank Research, we expect there will be a revival of consumption in 2024 and that it will grow at above 2% in real terms, thanks to the decline in inflation, job creation, buoyant wage rises (around 3%-4%) and a decrease in the savings rate to levels close to the historical average following the upturn in 2023.

With regard to commercial premises, in-person consumption is key, so the major factor that could determine this segment’s evolution in the medium term is the greater penetration of e-commerce. The pandemic triggered a sharp rise in the proportion of purchases made online, although since the lockdowns were eased that penetration has stabilised. Based on anonymised internal data on purchases carried out using CaixaBank cards, we can see that e-commerce has gone from representing an average of 20% of total consumption in 2018 to almost 28% in 2023.²⁶ According to Eurostat data, around 55% of Spain’s population made at least one online purchase in 2022, compared to 20% in 2010, while a comparison with other European economies suggests that there is room for further growth (albeit at more modest rates). It should also be noted that the development of e-commerce is not even across all retail sectors, but rather is concentrated more clearly in the fashion sector.

In any case, with the pandemic now definitively behind us and with the recovery of tourism, most retail consumption remains face-to-face. In fact, more and more digital native brands are opting to open physical stores in prime locations. This forces us to promote hybrid, more flexible premises that offer customers dynamic spaces, where physical shopping is combined with e-commerce. This need to adapt to new trends suggests that investment in refurbishments and asset improvements will be key in the coming years.

The evolution of the industrial and logistics segment, which has generated some of the greatest interest in recent years, is closely linked to that of e-commerce. Having also been affected by the interest rate hikes and very high rental costs following the rally in recent years (investment fell by 50%, following the record highs reached in 2022), investment in this segment will continue to be a focus of attention in the coming quarters, bearing in mind the steady rise of e-commerce and the scarce supply of this type of real estate asset in Spain. In addition, given the economic context of recent years, characterised by significant geopolitical uncertainty and the reconfiguration of global value chains, the need to accumulate stocks in order to prevent potential breakdowns in the supply chain has become increasingly clear.

The definitive overcoming of the pandemic, the end of restrictions on international mobility and the change in consumption patterns, with a surge in spending associated with social interaction, allowed the tourism sector, and the hotel sector in particular, to recover the activity levels of 2019 in 2023.²⁷ In this very favourable context, the hotel segment has maintained the same positive trend in terms of investment volumes as it enjoyed in 2021-2022. Indeed, it is the only commercial asset category in which investment grew in 2023, specifically by 30%, exceeding the long-term average. In addition, Spain attracted more investment to this asset category in 2023 than any other European country.

The 2024 outlook for this segment remains very positive, as a result of the enormous popularity that our country continues to enjoy among tourists, thanks to the perception of geopolitical stability relative to other competing destinations and the increase in disposable income both in Spain and in the main countries of origin of tourists.

Investment in offices has been severely penalised after the pandemic due to uncertainty about how the new forms of work will reconfigure the office of the future. In 2023, the volume of investment in this segment plummeted (down 55% from 2022 levels, which were already depressed), although there are significant differences depending on the location and type of asset. In this regard, investment in Central Business Districts (CBDs) continues to enjoy strong growth, with high rental incomes and occupancy rates. Less prime locations further away from CBDs, meanwhile, have performed worse and a trend is even beginning to emerge to convert these assets for residential use. In any case, given the improvement in the segment’s fundamentals, we expect transactions to recover over the course of 2024.

The most determining factor for this asset is the penetration of teleworking in the labour market. It is striking that, even at the height of the lockdowns, around 84% of Spanish workers in employment never worked remotely. In 2020, only 11.2% worked normally from home and an additional 4.3% sometimes did so – modest percentages compared to other European countries (see chart below). In this regard, it seems that a new form of hybrid work is now being consolidated, but with in-office work still playing an important role.²⁸

As with commercial premises, in the office market there is a great need for the conversion of assets, in order to adapt them to meet energy sustainability criteria and to make them more attractive to employees, with more flexible and higher-quality spaces that invite collaboration and teamwork.

Investment in the commercial residential segment fell by 30% in 2023, although it remains one of the segments that arouses the most interest among investors, having increased its share of the total more than any other segment in recent years (it accounts for around 30% of total investment in the Spanish market, only surpassed in 2023 by the exceptional performance of hotels). This segment includes the subsectors of multi-household rentals, student residences and rental housing for the third age (senior living). These sectors share a fairly limited available supply and a good outlook on the demand side, taking into account changes in lifestyle preferences and population projections.

In the rental market, the build to rent (BTR) segment began to take off in Spain in 2021-2022 in response to the growing demand for rental housing and an insufficient supply.²⁹ In 2023, however, investment has been held back by rising financing costs and legislative changes, which have reduced the profitability of such promotions. In any case, the significant imbalance between the high demand for rental housing and the low supply suggests that this type of development will continue to gain momentum when the financial conditions are relaxed.

The demand for student residences is clearly on the rise and is closely linked to the growing popularity of university education (degrees and vocational training, master’s and doctorates). The population projections between now and 2030 are favourable, as they reflect an increase in the university-age population of some 600,000 additional students, a trend not seen in other European economies.³⁰ If we assume that around 40% of this cohort enrols in these types of studies, there would be an additional 200,000 university students by 2030.

In addition, the increasing appearance of some Spanish universities in very prominent positions in the international rankings has boosted interest among international students for studying in Spain.³¹ Indeed, their numbers have increased by 43% between 2015 and 2022, representing some 40,500 additional students. As these types of students do not normally reside in our country, the resulting housing needs are evident. It should also be noted that universities themselves have been generating a steadily increasing demand for office space in CBDs in recent years. This demand is concentrated in the provinces where the main universities are located, such as Madrid, Barcelona, Valencia, Granada and Seville (see chart below).

Senior living is a segment that has been receiving increasing attention from investors in recent years. In this case, the potential demand is on the rise, taking into account the gradual ageing of the population, which has been evident for years but which will accelerate in the coming decades. Currently, the population aged 65 years and over exceeds 10 million inhabitants, that is, 22% of Spain’s population; but the retirement of the numerous baby-boomer generation in the next decade³² will lead to the population aged 65 and over exceeding 16.7 million and representing just over 30% of the total population. This trend is also widespread across the euro area, and is even more pronounced in the cases of Portugal and Italy. At the same time, it should be noted that the income of the senior population is increasing: according to the Spanish National Statistics Institute’s Living Conditions Survey, the average gross income of those over 65 years of age has grown by 20% in the last decade, reaching 22,347 euros in 2022. In addition, almost 20% of the senior population is concentrated in high-income percentiles (see charts below), compared to less than 15% a decade earlier, reflecting the fact that this age group accounts for an increasingly larger share of total incomes.