The recovery of tourism, the attraction of European funds and immigration continue to act as a tailwind for the Spanish economy, which is currently overcoming the crisis caused by the conflict in Iran. These factors have also led the analytics company DWS to assess the country’s economic outlook as “positive” in its latest report on the real estate market of the Iberian Peninsula.
The report highlights two investment opportunities:
- student residences;
- flex living, or short-term housing rental.
DWS notes that, although the contribution of some factors to GDP growth will decrease over time, the outlook for the coming years will remain positive. The stability of private consumption, supported by continued employment growth, rising real wages and government payments that strengthen household income, points to an improvement in economic dynamics despite inflationary pressure.
Spanish residential real estate: pressure between demand and supply
The study warns that the residential real estate sector in Spain is currently going through a “period of tension” after several years in which household growth outpaced supply. Future rent increases may not be as impressive as in recent years, so achieving higher returns will require a more careful selection of assets.
Under these conditions, investment in the affordable housing segment in cooperation with municipalities may provide entry into the market at a relatively attractive price with stable rental growth, although somewhat below market level.
In particular, in the residential sector, the imbalance between demand and supply has led to a jump in rents of more than 40% compared with pre-Covid-19 levels – especially in Madrid and Barcelona, which requires more careful asset selection for investment.
Thus, the most attractive opportunities are opening up in affordable housing in partnership with municipalities, and above all in student housing and rental models that allow stays of several days, weeks or months.
Student housing and flex living
Demand in these sectors will be driven by the growth in the number of students from major South American countries, which are key sources of student flows, while the supply of purpose-built student accommodation (PBSA) in Spain remains insufficient.
Shorter lease terms in this segment mean that a summer-period strategy is needed in order to generate income throughout the year – especially in Madrid, which is a less popular summer destination than Barcelona, although only the most central areas can attract tourists.
In turn, the flex living segment is developing from a small base – mainly in Madrid and Barcelona, where there is demand for short-term housing for both business and personal reasons.
The operational requirements of the sector, combined with the fact that most opportunities require forward funding, mean that initial yields are often around 100 basis points higher than those of traditional housing, providing some margin for yield compression as the asset stabilises.
The European real estate market and the impact of the conflict in Iran
As for the outlook for the European real estate market, it began 2026 in the midst of a recovery – yields were falling, and prime rents had reached historic highs – but the conflict in Iran caused a pause.
Rising inflation and more expensive financing cooled investor sentiment: transaction volumes fell by 10% in the first quarter, while the share of markets where yields were declining dropped in May from 15–20% to 2%.
However, DWS’s main conclusion remains unchanged: “New supply is at historic lows, construction costs have risen to the point where replacement rents significantly exceed current rents for premium assets, and cities such as London, Dublin and Madrid continue to show population and employment growth. The conflict in Iran is exacerbating supply constraints by making construction even more expensive, which increases upward pressure on rents in the most liquid markets.”
Outlook for 2026–2027
The forecast for the second half of 2026 and 2027 assumes that the recovery will resume, provided that the conflict does not become systemic and inflation in the eurozone returns to around 2%.
Residential real estate and logistics remain strategic pillars, while value-add housing represents the opportunity with the greatest return potential.
For investors considering apartments in Spain or commercial properties, this forecast underlines the importance of choosing the right location, property format and asset management strategy.
