Introduction
The first step in a rental investment project is deciding where to invest:
- Which is the most profitable region?
- Which is the most profitable city?
- Which neighborhoods are the most profitable?
Let's start with the regions, then move down to the cities, and then the neighborhoods.
The most profitable regions in Spain
The three most profitable regions to invest in are:
- Valencia (Valencian Community) with an 8.2% return
- Murcia (Region of Murcia) with an 8.8% return
- Cantabria with a 7.3% return
A common point of these three regions is that real estate is inexpensive there.
Indeed, Murcia (€1,207/m2), Valencia (€1,609/m2), and Cantabria (€1,838/m2) have prices per square meter below €2,000.
Conversely, the least profitable regions are also the most expensive:
- the Balearic Islands with a 5.0% return
- Madrid (region of Madrid) with a 5.5% return
- the Basque Country with a 5.5% return
In these three regions, which are therefore the least profitable in the country, the average price per square meter exceeds €3,000.
In the ranking below, we can observe that the region of Valencia (8.2% average return) is 50% more profitable than the region of Madrid (5.5% return).
For €100,000 invested, the average annual gross rental income will therefore be:
- €5,500 in the region of Madrid
- €8,200 in the region of Valencia (+49% more profitable than Madrid)
The most profitable cities in Spain
The most profitable cities are, unsurprisingly, in the most profitable regions.
Indeed, there are three cities in the region of Valencia among the most profitable cities in Spain, depending on your budget:
- Gandia, 70,000 inhabitants, price per m2 of 1,000 euros, profitability of 11.5%
- Sagunto, 65,000 inhabitants, price per m2 of 1,000 euros, profitability of 9.4%
- Valencia, 800,000 inhabitants, price per m2 of 2,500 euros, profitability of 7.7%
Here are the rankings of the cities where to invest, classified by budget range to adapt to your needs.
Best cities to invest less than 80,000 euros
What are the most profitable cities in Spain in which one can invest with a small budget?
Investing in Spain with less than €80,000 and obtaining more than 9% profitability? This is possible in cities such as Gandia (Valencia), Elda, Talavera de la Reina, Sagunto or Reus. Among these, Gandia is the most profitable city in Spain.
Did you know?
Terreta is present in Gandia. We have assisted our clients in making numerous rental investments in Valencia (the most profitable region) as well as in Gandia. Do not hesitate to contact us to find out more.
Best cities to invest between 80,000 and 120,000 euros
Between 80,000 and 120,000 euros, you can choose to invest in the municipalities of Orense, San Cristóbal de la Laguna, Torrent (Valencia) and even Alicante with average gross yields exceeding 6%. For example, Torrent (20 minutes from Valencia) has a profitability of 6.20%.
Best cities to invest between 120,000 and 200,000 euros
If you have a budget exceeding 120,000 euros, the most profitable cities available to you are Valencia, Santander, Salamanca. In addition to these provincial capitals, some cities around Madrid (Parla) and Barcelona (Hospitalet, Santa Coloma de Gramanet) may deserve your attention.
As an example, the city of Valencia has a rental yield of 7.70%, which places it ahead of Getafe (6.50%).
The reasons to invest
Prices and rental yields should continue to increase
To understand where to invest and how to allocate your money wisely, you need to know why prices and returns should continue to increase.
In addition to having rental yields significantly higher than other European countries, it should be noted that several economic, real estate, and demographic factors will continue to boost profitability in the coming years.
Could you say why investing in Spain is particularly interesting? In this article, we share some information that should be useful to you, and reinforce the meaning of your investment, the "why" so dear to Simon Sinek.
There is a shortage of 2 million homes
First of all, it should be noted that the new housing construction market is in crisis, even though housing needs are enormous. There is currently a shortage of more than 2 million homes to satisfy rental demand.
Rents are increasing very sharply
The demand for housing is so strong that rental prices have increased by more than 40% in the last ten years. In the Valencia region, rental prices have increased by more than 68%. When rents increase, rental yields increase unless sale prices evolve in the same proportions.
Purchase prices are still at the 2005 level
When purchasing, prices are still below the peak reached before the 2008 crisis, despite their annual increase of between 3 and 6% per year since 2015.
Price recovery is gradual, moderated by banking policies that require a significant contribution from buyers.
In 2024, prices are still at the 2005 level, close to 2,000 euros per square meter.
50% higher profitability than 15 years ago
Thanks to this context, the average rental profitability in Spain is now 50% higher than it was fifteen years ago. From an average of 4% in 2008, it is now close to 7%.
Leading the most profitable regions, the Valencia region stands out with more than 8% profitability in 2023. Everything suggests that prices and profitability will continue to grow, due to the structural housing deficit observed in the sales and rental market.
The most profitable districts of Madrid, Barcelona and Valencia
Which is the most profitable city between Madrid, Barcelona and Valencia?
When we talk about the most profitable cities in Spain, it is normal to think of Madrid, Barcelona and Valencia because they are the three largest cities in the country.
Among these 3 big names, the most profitable city is Valencia with 7.7% average rental profitability, which is 50% higher than its two rivals.
Madrid (4.9%) and Barcelona (5.2%) nevertheless present good returns, higher than other European capitals. Think for example of Paris, whose profitability barely reaches 3%.
Why is Valencia more profitable than Madrid and Barcelona?
This is due to the fact that Madrid and Barcelona are cities where the price per square meter is around €5,000, while it is €2,500 in Valencia, half as much.
However, on the rental price side, we do not find this difference.
It is therefore cheaper and more profitable to invest in Valencia.
Another major advantage for Valencia: prices are increasing three times faster in Valencia than in Barcelona. Indeed in 2023, prices increased by 3.8% in Barcelona, compared to +9.9% increase in Valencia.
Most profitable districts of Madrid
With an average profitability of 4.9%, Madrid is significantly more profitable than other European capitals such as Paris (3%).
Within the capital, some districts are significantly more profitable than others. The five most profitable districts of Madrid are:
- Villaverde (7.5 %)
- Puente de Vallecas (7.3 %)
- Usera (6.9 %)
- Carabanchel (6.5 %)
- Latina (6.3 %)
Conversely, the three least profitable districts are Salamanca, Chamartin, and Chamberi. A surprise? Not really, since these are among the most expensive districts, between €5,000 and €7,000 per square meter.
Most profitable districts of Valencia
Valencia is likely to catch up with Barcelona and Madrid in the next ten years, as its price per square meter (€2,500) is still far from that of its rivals (€5,000).
Prices are increasing faster there than in its two major rivals, and returns are significantly better (50% higher). The Spanish themselves are well aware of this. In fact, we assist many Madrid and Barcelona residents with their investments in Valencia.
Residents of Madrid and Barcelona know this, and we assist many of them in investing in Valencia. But what are the best neighborhoods to invest in?
The most profitable neighborhoods in Valencia are as follows:
- Rascanya (8.9%)
- Pobles del Sud (7.7%)
- Benicalap (7.4%)
- L’Olivereta (7.3%)
- Jesus (7%)
Conversely, L’Eixample and El Pla del Real are the two least profitable, which is not surprising as purchase prices there are among the highest, at €3,000 and above.
Most profitable neighborhoods in Barcelona
The most profitable neighborhoods in Barcelona are as follows:
- Nou Barris (6.3%)
- Sant Marti (5.9%)
- Sants-Montjuic (5.5%)
- Horta Guinardo (5.3%)
Conversely, Les Corts and Sarrià-Sant Gervasi are the two least profitable, which is not surprising as purchase prices there are among the highest, above €5,000 per square meter.
