Market Report MR-2023

WE DO NOT ADVANCE

Last year, we discussed the two pivotal challenges facing our sector and society—housing accessibility and the real estate sector’s energy transformation. If we were to evaluate 2023 using these benchmarks, we would talk about a straightforward failure.

In 2023, the impact of years of erratic policies and lack of public investment in housing became glaringly evident. Housing access is in a precarious state for various population segments, both in terms of renting and buying. To summarize, the rental supply significantly dwindled in 2023, the available units continued to escalate in price, and only those requiring minimal financing were able to buy. A distressing scenario for any society’s future, especially when considering its repercussions on the younger generation.

The energy transformation of the existing real estate sector has also seen no advancements, a matter that will be crucial in terms for housing supply much sooner than anticipated. Moreover, it holds significance for the comfort, health, and economic well-being of families, impacting society as a whole. In 2023, the Public Administration, intended to be the main driver through the Next Generation Funds, failed to promote or provide suitable mechanisms for transformative projects. Society, at the individual responsibility level, also has not considered this as a significant short-term issue in 2023.

Guifré Homedes Amat Managing Director

MARKET RENTAL

Contracts & Prices

Data from Amat Immobiliaris

Like in previous years, 2023 has been marked by a significant change in the legal framework, implemented at the end of May. Some aspects of the new Housing Law were implemented immediately, and others are still pending. However,theevolutionoftherentalmarketin2023hasbeenmainly due to the acceleration and consolidation of events that we had already carriedoverfrompreviousyears,aswealreadyforewarnedinpreviousreports.

We already anticipated that 2023 would witness a decline in activity due to the shortage of available supply, and our expectations have been confirmed. In our case, we have experienced two consecutive years of decreasing contract numbers, solely attributed to the scarcity of supply.

The difference compared to 2022 is that the decline in 2023 has been more pronounced, reaching 25%, accumulating a decline exceeding 35% over two years. The low activity level has remained fairly constant throughout the year, and our forecasts indicate it will remain in 2024.

RENTAL OPERATIONS EVOLUTION

Regarding the average rent, all our offices are now positioned well above €1,300; nearly 75% of new contracts in 2023 had rents exceeding €1,000/month. To comprehend the significant shift in the rental market, this same statistic a decade ago, in 2013, was entirely opposite; only 24% of new contracts were made with rents surpassing €1,000/month.

We can carry out a similar analysis regarding the repercussions, which are now clearly above €14/m²/ month and nearly reaching an €18/m²/month average in Barcelona city. If we look at their evolution in recent years, there was a growth period between 2013 and 2017-2018. However, essentially, what we really accomplished was go back to the repercussions that existed before the real estate crisis of 2007. Between 2017 and 2020, the repercussions remained more or less stable, while from 2021, after the first regulation, the supply begins to decrease, resulting in a pronounced growth in the repercussions.

There can be various interpretations of the causes and effects of these phenomena. One analysis we do is why tenants with limited economic capacity still exist, and this difference is not compensated with any form of external financing. Tightly correlated with the lack of supply, the evolution of prices in 2023 has followed an upward trend. The charts clearly depict an upward trajectory across all markets where we operate.

On one hand, the extreme practice of renting rooms, something we outright reject. The concept of sharing a flat has always existed, with elderly individuals renting a room or even well-planned co-living arrangements to meet specific demands. However, extending this in any way, taking advantage of people’s desperation to find housing, and presenting it as a trendy moment is a serious mistake. The sector itself should vehemently oppose such practices.

Another factor we deem important, as highlighted in our 2022 report, is the percentage of foreigners entering the longterm rental market. Similar to the previous year, in 2023, they represented significant shares: 37% of new contracts made in the city of Barcelona and 24% around Sant Just Desvern and

Sant Cugat del Vallès. Generally, this type of tenant profile is economically more competitive than local tenants.

Another relevant piece of information is that we increasingly seeing new tenants at the maximum allowed family effort rate. In recent years, more renting families are exerting a greater effort to pay the rent of the property they live in. We closely monitor this situation, as any general changes in the economy, especially in unemployment rates, could pose difficulties for those already making a very high effort.

Rental offer

Data from Amat Immobiliaris

We have frequently highlighted that the persistent shortage of supply is the main cause influencing the rental market. In previous reports, we’ve emphasized the consequences of consistently and hastily implementing regulations, which always results in a diminished supply. Additionally, we’ve explained how the widespread lack of interest in the rental market over the decades has resulted in an insignificant public housing stock.

Unfortunately, this situation remains the same. In 2023, there has been no significant progress in consistently generating a public supply to address the medium and long-term challenges. Neither have we established a stable legal framework; on the contrary, measures to prevent the current stock from decreasing further have not been incentivized.

As evident in the graph, we continue to experience a decline, approaching nearly half of the average supply we had in 2018. This supply is primarily comprised of the rotation of the portfolio we manage and, to a lesser extent, properties entering the rental market for the first time. In addition, rotation has significantly decreased, dropping from 14% over the preceding decades to a mere 7% currently.

What are the reasons? Why do people refrain from changing homes when renting?

1. Less access to homeownership: Previously, a significant portion of the population chose to rent and, when possible, purchased a home, thereby freeing up the rental property they were in.

2. Fewer changes within the same rental market: Tenants used to move to a different rental property that better suited their needs. Nowadays, this doesn’t happen as many struggle to find suitable alternatives, and if they do, they might not be able to afford it.

These two factors are decisive in whether there is or isn’t supply in the market. Another aspect, which we’ve mentioned on other occasions, is that once a property becomes vacant, the owner may make decisions preventing the property from re-entering the long-term rental market. These decisions have been and continue to be heavily influenced by constant accusations from the political-regulatory sphere and the simplistic narratives prevalent in many media outlets.

It’s noteworthy that the shift to other rental modalities for us has been statistically anecdotal, even though it is politically and media-wise portrayed as the next major crisis in the sector. What is genuinely concerning, yet often overlooked due to its indication of failure, is properties transitioning to sales and never returning to the rental market. We still sell twice as many properties annually compared to the years before 2020, and 2023 has not been an exception in this regard.

For future tenants, a contributing factor intensifying the perception of lack of supply is that we already have significant percentages of properties not publicly listed, as they are directly offered to our extensive waiting list of people seeking housing. In 2023, 15% of the properties available for rent were not publicly listed.

In regard to the type of property rented in 2023, there haven’t been significant changes compared to previous years. The easing in supply costs likely aided tenants in alleviating the impact on their family finances. However, it’s crucial not to overlook that residing in an energetically efficient residence should serve as a distinguishing factor for tenants, both economically and in terms of health and comfort.

Returning to familiar considerations, in a constantly changing legal context and with the persistent threat of regulating the market, what encourages property owners to improve their real estate portfolios?

In neighbouring countries, the energy efficiency of a property is already a market value; here, hardly anyone is making strides in that direction.

We have previously addressed the impact of foreign tenants on this market. Regarding the type of tenants, the data still highlights the challenges faced by young people striving for independence, a factor with significant social and economic implications that will shape the future of our society.

Conclusions

Data from Amat Immobiliaris

Unfortunately, we have already pointed out many issues that will remain the same or worsen in 2024. It won’t be a different year in this regard but rather cumulative. For several years, the situation has been escalating. For those seeking entry into the rental market, the upcoming years appear challenging.

Nevertheless, as a sector, we must relentlessly strive to bring sensibility to this market from all perspectives. Without balance, we are on the brink of collapse. Data should prevail over ideologies, combining short-term solutions with the sustained establishment of foundations for medium and longterm solutions.

RENT SEASONAL

Data from Amat Immobiliaris

For us, this has been an ongoing activity for years, though at a significantly lower scale compared to longterm rentals. Until 2023, we lacked consistently data to highlight any trends.

It’s important to note that almost everyone, even those who are supposedly well-informed, such as the media, inaccurately describe seasonal rentals. They consistently

MARKET SALES

frame it as a minimum of 32 days and a maximum of 11 months, which doesn’t align with the law. A temporary contract essentially requires demonstrating justified temporality, which leads the person to reside in a place for a temporary period of time and is therefore not considered one’s primary residence. Although it specifies a minimum of 32 days, there is no limit established for the temporality; the limit is set by the project that requires moving temporarily.

To provide some data from our 2023 contracts:

We came from an exceptionally active 2022, from the point of view of high volume of transactions that we carried out, and also, facing a more challenging landscape in terms of mortgage financing access, as we already mentioned. Yet, our activity in the second-hand market closely mirrored that of 2022.

OTHER AREAS FROM SPAIN

83%

17% FOREIGN

Basically from Europe and South America

ORIGIN

2ND HAND SALE

Data from Amat Immobiliaris

A constant factor from 2022 is the persistently low level of available supply, a challenge we’ve facing for years. This conditions our sales pace; with competitive offerings in terms of location, features, and price, the market swiftly responds. The average time to sell a second-hand property in 2023 has been just under four months, slightly higher than 2022.

A notable observation is the clear increase in the average price of all sales in 2023 compared to 2022. This year, the average approached €600,000, with certain areas surpassing, like Barcelona and Sant Just Desvern, and others closely following, such as Sant Cugat del Vallès.

This data doesn’t merely indicate the price evolution, but rather mirrors the supply we introduced to the market and successfully sold during the year. It distinctly highlights the buyer segments that exhibited greater activity in the real estate market.

The impact evolution graph clearly illustrates that across all the markets we operate in, we positioned ourselves with impacts surpassing previous years in various quarters of 2023. On average, we ranged between €3,700/m² and €5,000/m², slightly higher than 2022. Despite the intricate demand dynamics, the price trend has showcased stability, with occasional minor increases in certain areas.

Looking at price ranges, transactions between €450,000 and €750,000 experienced the most growth compared to prior years. Additionally, it’s noteworthy that, although numerically modest, in 2023, we more than doubled transactions exceeding €900,000.

BARCELONA

This year, the average in the city was €5,120/ m² built, marking a 15% increase over the previous year. The infographic shows the average repercussions in the districts where we were most active this year. In districts such as Sant Martí and l’Eixample, we have positioned ourselves clearly above the previous year’s figures, although this is always highly influenced by the available supply at any given time. In Sant Martí, we achieved the highest impact, exceeding €11,000/m² built.

2ND HAND PRICE SALES EVOLUTION

2023 2ND HAND SOLD PROPERTY TYPE SANT CUGAT

In markets like Sant Cugat, it is important to carefully analyse the evolution of the repercussions, given the significant activity of house sales. These properties usually have high absolute prices, but low repercussions due to their large surfaces. Nonetheless, the average has exceeded €4,000/m² built, specifically €4,250/ m² built. Similar to Barcelona city, the average is 15% above that of 2022. The range remains wide for the reasons explained earlier, and the maximum has reached €6,250/m² built in the most central areas of the city.

SANT JUST DESVERN

The average impact has been €3,550/m² built, a 4% lower than the previous year. Here, as in the Sant Cugat market, it is necessary to consider the market of houses sold during the year.  The range, as in previous years, has remained wide, and the maximum has reached €4,600/m² built in the central area of Sant Just .

The sold property typology in 2023 has undergone changes compared to the previous year, reminiscent of the shifts that took place just after the pandemic; the sale of properties with large surfaces has once again become predominant. Surely, the reasons differ from those in 2020 and 2021 when they were closely tied to the need for space. In 2023, we attribute this trend more explicitly to the higher price ranges, where we have had more activity.

From an energy standpoint, the properties sold still exhibit considerable deficiencies, with the majority receiving an energy rating of letter E or worse, constituting over 60% of the properties sold. In previous

discussions on the rental market, we already noted that this would eventually be a differentiating factor in properties.

In other reports, we have already remarked that, alongside access to housing, the energy transformation of the existing real estate stock stands as another major challenge our sector and society faces.

Unfortunately, in 2023, there have been no significant progresses in this regard, and the implementation of the Next Generation Funds aimed at this transformation has been minimal—a failure compared to the initial goals. As is often the case when things do not work, there are multiple causes impeding the effective functioning of the NGFs, with one notably standing out: the

poor structuring carried out by various Catalan administrations for project implementation through the funds. This has created a highly complex context, instilling zero confidence among property owners regarding the genuine possibility of receiving these aids. The year 2024 will mark the last chance to capitalize on these aids or not; any projects not initiated this year will likely be unable to meet the stipulated deadline to receive these subsidies.

To wrap up the analysis of the second-hand market, we turn our attention to whom the buyers have been in each market. Key aspects we would highlight include:

• The percentage of financed operations continues to decline , currently reaching its lowest levels.

• The market primarily consists of replacement transactions, with buyers between 40 and 60 years old clearly dominating the operations.

• The percentage of foreign buyers has slightly increased for the second consecutive year.

• The investor profile remains at very low levels compared to what it had been in the past. This is another factor impacting the lack of supply in the rental market.

2023 2ND HAND BUYER PROFILE

We anticipate a 2024 very much akin to 2023. If access to financing becomes somewhat more competitive, it may facilitate not only a replacement market but also the inclusion of new buyers. We do not foresee any significant changes in supply; it will likely remain relatively low, and therefore, we do not anticipate any shifts in the trend of price evolution.

NEW CONSTRUCTIONS SALE

Data from Amat Immobiliaris

The year 2023 has surpassed 2022 in terms of new construction activity, although the uncertain environment has posed challenges in decision-making processes.

One of the complicated factors we’ve encountered in 2023 primarily relates to projects in their early marketing stages, where there were high pre-sales requirements from promoters, yet uncertainty surrounding financing rates hindered buyers’ decision-making. This prolonged the pre-sale phase significantly, with the risk of early buyers losing patience if projects stalled.

However, as previously mentioned, activity notably improved as the months went by, and all projects were definitively consolidated.

In our case, the sales pace has been lower compared to previous years, with most projects averaging between 1 and 2 sales per month.

Due to the project types marketed throughout the year, the properties sold have been smaller compared to previous years, with surfaces below 90m² in built area and with 2 bedrooms.

For buyers, the energy efficiency of new constructions compared to second-hand properties remains an important factor. In all cases, new construction properties are rated as A or B, ensuring good energy performance for future residents, translating into comfort and cost savings .

2023 NEW CONSTRUCTION BUYER PROFILE

2023 NEW CONSTRUCTION PROPERTY TYPE

The buyer profile has been similar to previous years, as can be seen in the infographic. Notably, in some very specific projects, we have recovered the investor profile, which had almost disappeared in recent years. This is crucial to mitigate the supply issues that we are experiencing in the rental market.

The evolution of market impacts is closely linked to each project’s phase and typology. Most projects have ranged between €4,000 and €4,600/m² built, especially around Barcelona city. Within the city, we have clearly placed ourselves above these impacts. Despite various project phases, there hasn’t been significant upward movement in prices during marketing.

In Sant Just Desvern, we have successfully marketed two luxury projects, with impacts exceeding €8,000/m² built.

LUXURY MARKET

In our case, one of the main drivers of 2023. For the past two years, the luxury property segment has sustained, proportionally, more activity throughout the year.

50% of the sales have been houses, mainly located in Sant Just Desvern and Sant Cugat del Vallès, with some also located in Barcelona. If we add the singlefamily plots sold to build luxury residences, it becomes evident that more than half of the market has revolved around single-family homes.

In Barcelona city, our luxury sales have primarily focused on two specific areas: the upper Barcelona area and Diagonal Mar.

Regarding market impact, we’ve exceeded the €8,000/m² built threshold in several cases, particularly concerning new flats sold across various areas of Sant Just Desvern and Barcelona city.

From a demand perspective, the market continues to mix local buyers seeking replacements and foreign buyers in pursuit of second homes. The international market has facilitated sales in some of the city’s most iconic projects.

WHAT DO WE EXPECT FOR 2024?

The truth is that we do not expect significant changes compared to 2023. However, we do foresee that the rental market’s limited supply will persist, challenging housing access, whether regulated or not, due to a shortage of properties available.

We believe that the sales market will likely mirror 2023, and we will observe how the purchasing capacity of those who need more financing evolves based on interest rate changes.

Regarding real estate improvements, we hope that the modifications introduced at the end of the year will, once and for all, drive transformative projects and shape market trends.