SPAIN: An Introduction to Real Estate

Spain has not remained aside from major trends affecting real estate in Europe. If the pandemics very much fuelled e-commerce, enhanced the role that logistics operators play in the market and boosted the appetite for development and investment in logistics projects, this has remained, yet with a slight downtempo as inflation soared due to the Ukraine war and interest rates rose.

Governmental measures were adopted to mitigate inflation in the field of real estate, but these were mostly deployed to relieve contractors in public work contracts and alleviate tenants in residential leases.

Royal Decree 3/2022 of 1 March and Royal Decree 6/2022 of 29 March enabled contractors to adjust construction price in public work contracts following a specific calculation method and Royal Decree 6/2022 of 29 March came to address the impact of inflation in the pocket of home tenants by putting a cap to indexation in those housing leases where rent was subject to adjustment to reflect increase in cost of living and adjustment was to take place on or before 30 Jun 2022 (now extended to 31 Dec 2023). Most market analysts and commentators with whom we have exchanged thoughts would tend to say that Spain is in a situation where there is demand for XXL or XL or modern logistics warehouses; capitals are still there but the balance sheet does not turn for a developer at the current rent level and therefore there needs to be some adjustment in construction prices or in land prices (unless shortage of offers squeezes the demand by leading to an increase in rentals, which does not seem the most likely outcome).

As regards the residential market in Spain, it is a persistent commonplace that a Spanish individual or family has the aspiration of acquiring (and owning) their home. It is hard to say whether it is the pandemic that brought this, but reality is that “build to rent” has at least been a trending topic. Some say that housing needs combined with less stable jobs and topped salaries have led families and salarymen to resort to letting rather than to purchasing. Developers have then recurred to this model where the developer already builds and would not offer housing units in sale to individuals but rather look for tenants (lucky early-bird tenants, if such a concept persists). The quest for tenants also brings in the need to sell a “customer experience” and not only square metres of housing units in exchange of a regular payment.

In fact, maybe the trend that the pandemic left behind was precisely the birth of the concept of “customer experience” in most real estate markets (such as residential, office, logistics) aimed at tenant's employees, who now have access to a varied range of leisure or convenience services, safety and a lively and attractive work environment for customers and employees in their logistics parks, leisure services in their office spaces (as pandemics ended large office spaces populated with desks in vast open spaces as now employees are not permanently in offices but shift).

And this concept of “customer experience” lives up to the deepening of the “ESG” mindset in real estate in Spain (“E” for environmental, “S” for social, embodying human capital and social opportunities for customers and employees, and “G” for governance).

Legal databases reveal that “circular economy” is the most repeated phrase in legislation developments throughout Spain. The trick here is that Spain is a country where basic statute of land and zoning is a competence that belongs to the “state” but where autonomous communities (regions) who have assumed competence (Section 149.1.3 of the Spanish Constitution) and are able to enact their own legislation. Also, the state reserves basic competence on protection of the environment “without prejudice to the authority of autonomous communities to establish an increased protection” (Section 149.1.23rd of the Spanish Constitution).

The “E” has thereafter shown itself in the field of real estate in Act 7/2022, of 8 April, which implements quite a substantial number of EU Directives and regulates an inventory of polluted soil and the mechanisms for recovery of polluted land and the responsibility associated to the pollutant and to the owner of the polluted land. This has been developed, paraphrased in Act 5/2022 of 29 November of the autonomous community of Valencia, which has also established a list of priorities, and was preceded by many other regions that established an “action plan”, a “policy” or a “strategy”. The “E” is also present in the Act 11/2022 of 28 June on Telecommunications, which stresses how an operator’s right to occupy public or private property can also be nuanced due to “environmental” reasons and end up imposing shared occupation; and in Act 9/2022 of 14 June on the Quality of Architecture, which stresses that the architecture is of “general interest” and calls on public authorities to promote public policies that enhance energy efficiency, reduction of carbon footprint, environmental protection and adaptation to climate change, and the optimal management of resources throughout the whole life cycle.

The ”S” is also invoked in Act 9/2022 of 14 June on the Quality of Architecture when calling for the “quality of life, well-being, social cohesion and inclusion, and health, due to their link with the protection of the safety and health of citizens,” and is being tested as public administrations and market players are starting to create public-private partnerships or associations to address how to invigorate or revitalise spaces under a “social” approach (as could be the urban economic development areas created in Catalonia through Act 15/2020, of December 2022).

But the “E” has also been invoked in a modification of Spain’s Technical Construction Code, which establishes the fundamentals of construction throughout Spain, as Royal Decree 450/2022 of 14 June broadened the scope of buildings that need to have built-in installations that allow generation of energy through renewable sources and also the scope of buildings that must have installation for charging of electrical vehicles.

Spain being one of the countries whose energy prices are the steepest, photovoltaic projects have been a major trend as owners of buildings of large rooftops in the quest for ancillary revenues were keen to lease rooftops to professional operators who can actually provide energy at a better price to building users. Successive amendments to Royal Decree 244/2019 of 5 April would seemingly enable the sale of energy generated through photovoltaic installations on rooftops of one or more buildings (industrial, residential or other not specifically intended for the production of energy) on a self-consumption basis to users in a range of 2,000 sqm.

In parallel, “green lease” clauses have prospered as landlords wish to have indicators and information from tenants on energy consumption that enables landlords to improve performance of their buildings and know their clients’ energy consumption trends and sell energy to the tenant according to the tenant’s needs.