Property Rental in Spain: Declining Profitability and Rising Defaults

Property Rental in Spain: Declining Profitability and Rising Defaults

Girona

The pandemic has seriously destabilized Spain’s rental market, creating challenging conditions for property owners. Rental yields have dropped 30% since 2018, reaching 4.5% for new housing and 6% for resale properties.

Downward Trend

The “Rental Profitability 2021” report showed that rental rates grew slower than purchase prices, leading to widespread yield compression. This is particularly acute in the new housing segment. Madrid and Barcelona show divergent dynamics: rental yields for new housing in Madrid fell 33% since 2018, while in Barcelona the decline was 14%.

The desynchronization between rising property purchase prices and rental costs explains this phenomenon. According to analyst forecasts, “rental profitability will continue to decline, at least in the short term,” as property purchase prices continue to rise.

By regions, rental yields for new housing vary significantly:

  • Highest: Cantabria (5.8%), Navarra (5.8%), Catalonia (5.7%)
  • Lowest: Balearic Islands (2.2%), Aragon (3.9%), Madrid (4.2%)

For resale housing, Murcia (7.5%), Valencia Community (7.1%) and Castile and León (7%) lead, while the Balearic Islands (4.2%) and Madrid (4.8%) close the ranking.

66% Increase in Defaults

The number of rental defaults surged 66.2% in 2020, exceeding even the financial crisis figure (55.5% for 2009–2012). The average tenant debt amounted to €6,373 in 2020.

Uncertainty prompted 20% of small landlords with expiring contracts to sell their properties — a sharp jump compared to less than 2% before the pandemic.