A Crisis Like No Other with an uncertain Recovery……

2020 will of course remain printed in our minds as the year that the Corona plague unexpectedly hit the world. Major uncertainties still persist regarding the origin, nature and method of control. As long as no efficient and affordable medicine is found, it remains to be seen how the virus and humans will behave in the coming months and perhaps years.

For the first time, all regions in the world are projected to experience negative growth in 2020. There are, however, substantial differences across individual economies, reflecting the evolution of the pandemic and the effectiveness of containment strategies, variation in economic structure (for example, dependence on severely affected sectors, such as tourism), reliance on external financial flows, including remittances etc….(IMF)

The pandemic and the measures taken to contain the spread mainly impacted economic activity which is expected to have been the worst drop in GDP since the Second World War. Strong GDP contractions are projected for France, Italy and Spain..

In Spain, about 50,000 people have died from the Coronavirus, two million have entered in temporary technical unemployment, many of which will become long-term or permanently unemployed and the GDP could have a decrease of almost 20% with an uncertain recovery in 2021

For that reason it is almost impossible to make correct predictions about how the economy in general and construction and real estate in particular will evolve.

In Spain there will be sectors (residential, commercial, industrial), segments (low, middle and top class) and regions that will suffer more or less or maybe not at all. Evolution is indeed going to be completely different in “Prime” cities compared to small towns, countryside and tourist areas, but also between residential, commercial and industrial sectors.

In any case, at least in the short term, new rules of conduct will be imposed, such as “social distances”, sanitary and hygienic regulations in places that are open to the public but also to the working environment. This can change work rhythms and labour conditions. More importantly, many people consciously behave differently to safeguard their own safety and that of their environment. As a result, social life and leisure activities will change. Teleworking and Home working will increase, co-working will decrease. In retail, we see the rise of e.commerce that will cause businesses to disappear and commercial properties to become vacant, all of which will also impact the real estate market.


A Private sector


A1 First residence market


The panorama described above will of course have an influence on the “first residence” market. If one takes into account that the new generations generally opt more for short-term commitments (rental) instead of long-term obligations such as mortgages. After all, this gives them more flexibility in a world of great economic uncertainty.


As a result, there will be a larger market for building properties to rent out. A market for individual or professional investors.


A2 Second residence homes


The situation in the second housing market is slightly different. Although not fully recovered from the previous crisis (2008-2014), there was once again a boom in some areas, such as on the Costa del Sol and Costa Blanca, although there has been a slight stagnation in those markets since the end of 2019.


It is important to mention that in those zones almost 50% of the buyers are foreigners. In the low and middle segment, it would be rather cautious to wait for the evolution of the market. After all, many factors play a role here, such as economic uncertainty in the world, Corona, Brexit (the British represent the majority of foreign buyers) and, of course, the fear of traveling and getting into quarantine measures here or in the home country.


So unless one is obliged to buy or sell, everyone will postpone their plans. So the only bargains for the moment are to discover those opportunities.


Those who planned to sell should consider whether it would be wiser to do so anyway. In all likelihood, prices will drop (10 to 25% depending on the type of product and the location) over a period of time and the longer you wait the more products will come onto the market.



In both A1 and A2, this downward trend will be slightly less marked in the higher and prime segment. The wealthier people will possibly consider purchasing a second or third stay as a refuge in the event of a next full or partial lockdown. In any case people will take in mind a good space for teleworking, improved storage in the kitchen, bigger terraces without forgetting the connectivity of the house.


B2 Office spaces


Coworking: Demand has fallen slightly since 2019, partly due to the less success of large operators of coworking offices. The demand for coworking will decrease due to the implementations of the Covid regulations.


In any case, teleworking and working from home will make a big leap forward in Spain, which is currently one of the European countries with the lowest number of teleworkers per capita. Prime office buildings in the main city centers retain their attractivity although the buildings, like other workspaces, need to be adapted to corona measures as long as the virus has not been eradicated or controlled.


From now on, as in the hotel industry, changes will have to be considered in the lease conditions , such as shorter lease obligations and clauses specifying who and how the consequences of a lockdown will have to bear, which can contribute to demanding a higher return and thus rent increases.


But there is also increasing demand for more flexible office spaces. Companies may reduce and adjust their office space, for example by offering meeting rooms and replacing individual to common areas and setting up offices closer to employees’ residential areas.


B3 Retail


As remote working has made a big bound forward, the same can be said for the “e.commerce”. Demand is rising, such as Amazon, but also the major brands in all sectors. Zara, for example, closes 1,200 stores in Europe and Asia. According to the company, it’s not because they are unprofitable but because the e.commerce has almost doubled. A direct consequence is that many commercial properties will become available on top of the many bank branches that are closing more and more because of cost savings and online transactions. So there will be a rush to prime locations in major cities and centers where the brands can place their flagships and more offers than demand in second areas.


B4 Hotels, holiday buildings


Most hotels, like all of Europe, remained closed until July 1 this year and many will not open in 2020.


Investors look for opportunities, especially with regard to distressed assets. Big chains . will come through 2020 this year, but smaller ones will have a harder time. For those hotels, investors will offer to recapitalize ailing investments and acquire value-added assets in the coming months.


As soon as travel restrictions are lifted, the exploitation of tourist apartments will recover slowly. This activity is increasingly coming under control of investors who are then looking for prime locations and professional, solvent and reliable operators. Moreover, there will be more control over the installations and permits of those apartments. The intention is that exploitation will only be allowed if the entire building is exclusively prepared for that purpose. The corona virus will indeed tighten that requirement.


B5 Industrial and commercial buildings and plots.


This is of course the most sensitive sector for the economic situation, with the exception of logistics due to e-commerce and supermarkets in residential centers due to the lockdowns and other restrictions of movement. Commercial centers and hypermarkets are much more sensitive. These assets should therefore be studied with great care.


B6 Multifamily buildings. Residences for students, senior residences and hospitals.


Another sector that is expected to stand out in 2020 due to the trend of sustained investment growth is that of multifamily properties, including rental properties, but mainly student or senior residences, that positioned themselves as one of the most attractive in 2019 due to the demographic evolution, the new needs of society and the attractive returns they offer compared to traditional products.


Last year, the investment volume in student residences in Spain was 980 million euros (approximately 300 million euros in 2018) and portfolio transactions will be more frequent this year, bringing investors with a core and core plus core profile, attracted by the stable income stream from this type of asset. (yield 5.25%)




The Covid has of course demonstrated that there were shortages in sanitary installations and personnel. All major cities are considering expanding existing installations or building new hospitals. The private care sector is also going to invest more and more and is looking for investors for the assets.


 Final though


This overview is very general and perhaps somewhat blurred. However the situation is complicated, and as long we will not have better insight, forecast will remain uncertain. In any case, it is a must to be assisted if you want to do transactions in Spain, especially when it comes to investment where the rational prevails the emotional.


Rik de Ridder cofounder of Quintessence International Real Estate

Madrid updated July 2020.