Our 2023 Madrid real estate report shows how Madrid real estate prices and rental yields performed in 2023. We discuss aggregate pricing in the greater Community of Madrid and current market trends, then walk through pricing in the premium neighborhoods in demand by investors. We follow this with a discussion of rental yields. We conclude with our outlook for 2024.
Madrid real estate prices
In 2o23, Madrid real estate prices continued their post pandemic recovery. The end of 2023 saw prices at an all time high, surpassing even the highs they achieved in 2007, before the crisis hit. On average, the price per square meter in the greater Madrid area was 3,106€. The upward trend continued in early 2024. At the end of January 2024, the average price per square meter rose to 3,154€. Note that this is an average; real estate prices in premium neighborhoods such as Chamberí and Salamanca were twice that.
European interest rates
It is notable that the price increases in Madrid real estate occurred in an environment of rising interest rates. 2023 saw a dramatic increase in interest rates as the European Central Bank (ECB) struggled to curb inflation. The ECB increased European interest rates very aggressively; in September 2023 they brought them to an all time high.
Typically, higher interest rates lead to falling property prices. For example, the US Federal Reserve also aggressively increased interest rates in 2023. Since early 2022, the Fed raised its policy rate by 5.25%. As a result, housing prices in the US dropped dramatically in 2023. The fact that Madrid real estate prices increased in a similar environment demonstrates the strength of the market.
Pricing trends in Madrid neighborhoods
Ideal neighborhoods for investors
Most investors are interested in premium neighborhoods in the Center, in residential neighborhoods like Chamberí and Salamanca, or close to the central business district in the north. In the past, apartments in the Center were renovated and rented as short term tourist rentals. However, recent changes to Madrid’s Airbnb regulations stipulate that only ground or first floor properties with no neighbors underneath can be rented short term (for periods of less than 28 days). Moreover, there are additional regulations that must be met.
As a result of these tightened restrictions, investors are turning to renting one bedroom apartments in the Center, or in neighborhoods with very high gross rental yields (like Tetúan) to students. These apartments can be let for a semester, or an entire school year. In 2024, this is the “sweet spot” for investment in the city. Students are good clients because their parents typically cover their housing costs. Since student housing in Madrid is cheaper than in places like the US or the UK, their parents are willing to pay “top dollar” for their child’s apartment. Students typically rent seasonally (August-May), which frees up the apartment for a medium term rental (or two) in the popular tourist months of June and July. To learn more, we invite you to read our case study on medium term property rental in Madrid.
Pricing trends, by neighborhood
2023 saw real estate prices in Chamberí increase 6.7%; in December 2023 residential real estate in Chamberí was 6,158€ per square meter. This price increase saw it overtake Salamanca as the most expensive neighborhood in Madrid; real estate prices in Salamanca increased 4.4%. In December 2023 residential real estate prices in Salamanca were 6,125€ per square meter. This trend continued into January 2024, with Chamberí real estate prices continuing to marginally outpace those in Salamanca.
2023 saw another interesting trend: real estate prices in Chamartín were almost as expensive as those in the Center. Real estate prices in both neighborhoods demonstrated strong growth in 2023, compared to 2022. Prices in Chamartín increased 7.1% while prices in the Center increased 8.5%. Chamartín is becoming an increasingly attractive neighborhood in which to live. It is the focal point of business in Madrid, so there are many excellent restaurants, great shopping, gyms and other things that make a residential neighborhood an attractive place to live.
If you want to buy an apartment in the city of Madrid but don’t want to pay the premium prices seen in the most expensive neighborhoods, prices are much more reasonable in Moncloa (home to many students), Arganzuela and Tetuán. We find Tetuán to be an extremely attractive neighborhood for investors as prices are reasonable—on average 4,333€ per square meter—but gross rental yields are the highest in Madrid, averaging 6.3%.
Madrid rental market overview
Madrid has the highest rental yield of all major cities in Europe, as we explained in our recent article: What is the European city with the highest rental yield? A primary driver of this is the rents in Madrid, which are very high compared to residential real estate prices. This is particularly true in the Center and in Tetuán.
Madrid rental yields
Rental yields in Madrid vary greatly by neighborhood. The relatively high price of real estate in neighborhoods such as Chamartín and Salamanca keep the rental yields relatively low. The neighborhood with the highest rental yield is Tetuán. Tetuán, located directly to the north of Chamberí, is one of our preferred areas for Madrid property investment in 2024. It is also Madrid’s newest trendy neighborhood, attracting not just students but artists, photographers and designers. It is an ideal neighborhood to purchase properties and rent them to students.
The neighborhood with the next highest rental yield is the Center. Many students like to live in the Center because of its many bars, clubs and restaurants. Our recommended investment strategy for 2024 is to buy one bedroom/one bath apartments in the Center and rent them to students. We have a client that recently purchased two apartments for 250k€ each in the Center (they needed a total investment of 500k€ to obtain a golden visa) and rented them to students. Their pre-tax net rental return on the combined apartments was 4.29%.
What to expect in 2024
We expect the Madrid real estate market will continue to perform strongly in 2024. The main reason for this is interest rates. Currently, European interest rates are at an all time high:
source: tradingeconomics.com
However, inflation rates in the EU fell dramatically in 2023. They ticked up slightly in December 2023, but this is common during the holidays given increased consumer spending. In January 2024 they dropped back to 2.8%:
source: tradingeconomics.com
Typically, the ECB’s monetary policy follows that of the US Federal Reserve with a three to six month lag. US investors are eager for the Fed to start cutting interest rates as inflation is under control in the country and the economy is experiencing good growth. Although the Fed recently signaled that it would not cut rates in March (as investors were hoping for), its Chairperson, Jerome Powell, went on record stating that the Fed would cut interest rates three times this year, and it could begin as early as May. Once this happens, the ECB is expected to follow suit. We anticipate this will cause Madrid housing prices to perform strongly in the second half of 2024.
Are you looking for an investment property in Madrid? Madrid Estate can help you find the perfect property to maximize your net rental yield, making a safe, secure profit in this changing landscape. Arrange a FREE CONSULTATION TODAY to learn more.
