The expectations placed on build to rent (BTR) are fading and voices are growing that this model, which consists of the promotion and construction of apartments for rent, is more dead than alive. Or, at least, dying. It is not a minor issue, since it compromises the increase in the supply of rental homes, something that would take pressure off the crisis. This formula was consolidated in Spain around 2021, when developers and investment funds – usually associated through joint ventures – announced the construction of thousands of new apartments for rent managed by a professional operator. But the numbers don’t work out, the accounts don’t add up. Alejandro Bermúdez, CEO of Atlas Real Estate Analytics, speaks of “a perfect storm of land, financing and construction, to which is added regulatory uncertainty and the growing lack of protection of the landlord-lessor.” The result: “It is very complicated to carry out rental housing projects.” Colliers recalls that in December 2023 they already predicted that the model was practically going to disappear. Since then there have not been more than a dozen new developments of free housing that have been destined for the BTR,» says Antonio de la Fuente, general director of the Living division of the consulting firm. An analysis prepared by the real estate data platform Atlas for EL PAÍS details the decline. In 2021, BTR’s private and public portfolio planned for 2025-2026 was 90,180 rental homes, both affordable and free. In 2022 this number rose to 102,560. Bermúdez. The majority has given up its initial purpose and has moved on to plan b. “The scarce available residential land is being allocated mainly to the development of housing for sale, a segment that is working very well and is not affected by the same regulatory uncertainties,” comments De la Fuente estimates that investment in this segment has gone from 1,883 million euros in 2023 to 684 million in 2024 and 676 million until September. this year. Very different numbers from those managed by the consulting firm CBRE, which records 1,170 million euros between the first and third quarters of the year and which maintains, however, that the model is not at all exhausted. Atlas data confirms that today there are 13,434 rental homes that are still under construction, both from private developers and public administrations. The bulk, 8,900, are in the provinces of Madrid and Barcelona. those completed and those in progress total 28,434 apartments, very far from the initial objective. What has happened so that in a few years this model has ceased to be an important lever to increase the rental stock? Alejandro Bermúdez cites the price of land as one of the major bottlenecks. 35% or 40% of the cost of the building, the sales price that developers should demand is around 9,000 euros per square meter and its rental equivalent would be around 37.5 euros per square meter per month, an unviable threshold for the target demand of the BTR.» In the event that the developer already has the land, he can form a large portfolio and sell it to core capital—institutional investors looking for low but very stable returns. De la Fuente adds another great «The returns that investors demand to develop new rental housing or to invest in existing housing have increased.» And he cites two reasons: «Due to the increase in the profitability of State bonds, that is, the risk-free profitability at which they can invest in Spain or in Europe and due to the perceived risk towards rental housing due to regulatory instability against the owners.» Regulation is one of the aspects that experts criticize most; and others, are selling their portfolios. Although there are several reasons: “Good time to sell homes, large and stabilized portfolios, increasing pressure on rental owners that triggers alerts in managers and, finally, a certain fomo. [acrónimo en inglés de la expresión “miedo a perderse algo”] «in losing a good moment in which there are quite a few sales of housing portfolios,» says Bermúdez. It is not defining, but the fact that financing today is much more expensive today than during the financial euphoria that fueled the BTR – although interest rates have fallen – and construction costs have increased more than 40% since 2020. Jaime-Enrique Hugas, co-founder and one of the two CEOs of the developer Conren. Tramway is categorical in stating that build to rent in free housing in Barcelona has died. “The projects were very tight on profitability and if we add to that the regulation of rents, the sector can hardly do BTR,” says the director of this developer, one of the main ones in Barcelona, which promotes the urban transformation of the Mercedes, a project located in the old Mercedes-Benz plant in the Sant Andreu district. “We were forced to change the business plan to homes for sale,” says Hugas.
Affordable rents
When it comes to affordable housing, that which has prices lower than the free market and arises from public and private collaboration through the transfer of land in surface rights, things change, although it is not excessively attractive either, at least for the majority of investors. “The net returns are between 3% and 4% annually, lower than those of a sovereign bond with a much higher risk (physical and reputational),” they say in Atlas. For this reason, the capital that comes into affordable rental is core, with low and stable returns. In the case of Catalonia, “when it comes to protected housing, although the returns are very low, it can continue to be done because there are more legal guarantees,” says Hugas. In this segment, the plans of several autonomous communities, such as Madrid, Catalonia, the Basque Country, Andalusia and the Valencian Community foresee a wave of public-private collaboration with different rhythms. The CEO of Atlas believes that as long as all the variables are not rebalanced, “we will see more conversion to sale, geographical focus on Madrid and Barcelona and public-private collaboration as the main avenue for affordable housing.”
