Market niches to invest in the real estate sector

Inflation, rising rates, increased construction costs and tightening of bank credit are the main challenges for real estate investment in 2023.

Thomas Osborne
Thomas Osborne
02 February 2023 Thursday 10:40
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Market niches to invest in the real estate sector

Inflation, rising rates, increased construction costs and tightening of bank credit are the main challenges for real estate investment in 2023. A context of uncertainty in which a drop in transactions in the residential sector of around 15% is predicted. and a price adjustment. Despite this, experts believe that there is room in some market niches. But, where and how to invest in such a complex moment?

The housing or residential market will continue to be in the focus of investors, although "with nuances", has indicated Sergio Espadero, director of consulting and valuation of the Tecnicasa Group, during the event Real Estate Investment Strategies at the present time, held this Thursday at the Cuatrecasas Auditorium (Barcelona). Although the decrease in prices and transactions is taken for granted, "there are market niches with very high potential demand that are not being satisfied."

An example is the transfer of land use rights to promote affordable rental housing. "It is an infinite segment in Spain" due to the imbalance between supply and demand after years of delay by the administration in promoting this type of housing. Pablo Méndez, Culmia's investment director, recalls that this segment has a great advantage over the traditional housing market: the "predisposition" on the part of the administration when it comes to processing licenses and authorizations, which allows this type of housing “available to demand in a considerably shorter period than usual”.

And what about the traditional housing market? It is profitable? Yes, although the supply continues to be reduced "due to the scarcity of land" in cities with high demand, analyzes Pablo Méndez, investment director of Culmia. The forecast is that the situation will persist in the main centers, such as Madrid and Barcelona, ​​in the next two years, despite the fact that "there is a supply of new construction that is much lower than the real demand". Likewise, the increase in the cost of credit and the increase in construction costs do not augur a change in trend either.

Another factor that comes into play when betting on a profitable real estate investment is the construction of housing following ESG, social and environmental responsibility criteria. In this sense, Julio Egusquiza, Anticipa's director of operations, recalls that the Spanish market is basically "second-hand", since more than 70% of the real estate park is outdated and fails in terms of energy efficiency, with E or F ratings. –the maximum rating is A-, with which “we understand that we have to make a great effort to improve the sustainability of the old park”.

The sector hopes that Next Generation aid for rehabilitation will be used to rejuvenate towns and cities. A purpose for which, according to Egusquiza, public-private collaboration will be essential to promote dissemination and participation projects that allow neighborhood communities and neighborhoods with more vulnerable families to modernize their buildings.

On the other hand, the segment that lived its golden age during the pandemic due to the boom experienced by online commerce, logistics, continues to be in demand. The problem lies in finding land at a price that allows the operation to be profitable. "Or being able to produce soil with a certain agility in the appropriate locations for this use," adds Espadero, who also sees investment in farms and student residences as an alternative, coinciding at a time of increasing foreign students.

Beyond the opportunities generated by the real estate market, what factors must be taken into account when launching to invest? For Espadero, "in a time of uncertainty like the current one, the ability to analyze and manage must prevail." The analysis, he argues, "will give you a realistic vision of the asset you intend to buy or transform, but then you have to walk the path."

Even so, he argues that at times like the present, new opportunities are also opening up "because there is less competition" -large investors opt for inactivity-, so it can be a good opportunity for those who are less dependent on bank financing. or alternative and that are capacities to identify assets that can gain value with a small transformation and less initial investment.