- Spanish property currently offering a 6.7% return!
After several years marked by strong growth in rental prices (and purchase prices) Spanish residential properties are currently generating a 6.7% (gross) return on investment.
This return on investment is based on long term lets, not on holiday lets which offer (potentially) higher yields but with more uncertainty and seasonal variation.
Real estate returns continue to far exceed those of assets considered safer. Even the least profitable asset analysed offers a spread of 1.5 percentage points over the 10-year government bond, which stands at 3.5%. It is also worth noting that there is currently a shortage of properties in Spain, which should lead to higher returns of investment as time progresses.
What types of real estate assets are offering the best returns?
When comparing sales and rental prices across different segments, office spaces appear to be the most profitable asset in the real estate market. Specifically, they offer a gross rental yield of 11%. Retail spaces follow, at 10%. Followed by residential properties at 6.7%.
Please note there does appear to be a high amount of geographical variation with certain large cities offering substantially lower returns on investment. It is also worth taking into account not only the national market but also the international market which has had a substantial affect on capital flows.
This information also does not take into account current Spanish legislation regarding the rental market. For a landlord it is a far simpler (and quicker) process to end a contract for a commercial property than it is for a residential property.
Nor does this information take in account the potentially higher income that can be generated from a residential property that caters to the holiday rental market.
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