Caption: Madrid, Europe's second most attractive city for investment
Source : Expansion
Introduction
Since 2024, Madrid has experienced a remarkable boom and, by 2025, will be on the podium of Europe's top real estate investment destinations.
Thanks to its strategic location, economic dynamism, quality of life and tax advantages, the Spanish capital is becoming a safe bet for investors, particularly foreign investors.
Terreta Spain's experts put the city under the scanner and explain everything.
A solid economy
Spain at its best
Unlike France or the UK, where the economy is sluggish, Spain is enjoyinga period of remarkable dynamism. The country is leading European growth, with a GDP increase of 3.2% in 2024, exceeding forecasts (2.8%). In 2025, the IMF forecasts moderate but stable growth of around 2.1%, confirming the resilience of the Spanish economy despite the climate of global uncertainty since Donald Trump came to power.
The country's performance can be explained by several factors:
- The tourism sector is booming, with almost 95 million visitors in 2024, 10 million more than in 2023, and an increase in spending of over 16%.
- Vigorous household consumption, underpinned by a steadily rising employment rate: the unemployment rate has fallen to stabilize at 10.6%, its lowest level in 16 years.
- Exports on the rise, according to Spain's National Statistics Institute: 2024 was the second-best year for exports in the country's recent history (+2.4% year-on-year).
- Spain is one of the five countries in the world attracting the most greenfield projects in 2024: almost 700 projects, 33 billion euros of investment and more than 60,000 jobs created (ICEX-Invest in Spain Barometer of the business climate in Spain).
Caption: Spain ends 2024 with an unemployment rate of 10.6%, the lowest in 16 years.
Source : 20 minutos
Madrid, the country's powerhouse
In 2024, the Community of Madrid recorded GDP growth of 3.3%, slightly exceeding the national average. This is the fourth consecutive year that the region has outperformed the Spanish average! The capital has established itself as the country's economic powerhouse, now accounting for 19.6% of national GDP .
- The city leads the country in job creation: one in every 4 companies created in Spain is in Madrid.
- The Community of Madrid is home to 43% of the country's technology professionals, according to the official website of the Community of Madrid.
- Madrid accounts for 72% of foreign investment in Spain, or over 17 billion euros (Madrid Investment Attraction).
All this translates into a climate of confidence and a very positive international image. The Spanish capital even recently overtook Dubai and Paris in the Barnes City Index of cities preferred by the wealthy.
Alvise Da Mosto, Associate Director Barnes Spain
A strategic geographic location and exceptional quality of life
Another advantage is Madrid's ideal location and excellent connectivity with the rest of the country and the world. It's easy to fly to Paris, London or Berlin for a business trip. Adolfo Suarez Madrid-Barajas airport has seen its passenger numbers increase by 10% in 2024 compared with 2023 (66 million). It is the undisputed leader in Spain, including for international traffic and freight.
The city's infrastructure is of outstanding quality. Madrilenos benefit from one of the best transport networks, hospitals, schools (including international ones) and universities in the world.
The climate is pleasant, pollution moderate, the cost of living reasonable, purchasing power quite good... In short, Madrid is a great place to live, and its quality of life is becoming the envy of the world. In 2024, Expat Insider ranked Madrid among the top 10 most liveable cities in the world.
Caption: The 10 best cities for expatriates.
Sources: Internations
A city undergoing profound transformation: modernization and ecology
Cutting-edge urban projects in 2025
By 2025, the Madrid City Council will be investing hundreds of millions of euros in almost 600 urban projects in all districts of the capital. These transformations will undoubtedly enhance the residential and heritage appeal of many neighborhoods, offering excellent prospects for real estate value enhancement in the medium term.
Emblematic operations include :
- Redevelopment of central squares: Dos de Mayo, Pedro Zerolo, Tirso de Molina, Jacinto Benavente and Jardines de Sabatini.
- Heritage enhancement: renovation of the Paseo del Prado, El Capricho park and the façade of the History Museum.
- The creation of new community facilities in Carabanchel, San Blas-Canillejas and El Cañaveral, a growing neighborhood.
Bosque Metropolitano: Madrid bets on green
Among the flagship projects for 2025 is the Bosque Metropolitanoa 75 km green belt around Madrid, designed to create an ecological barrier against urban sprawl and enhance the quality of life of local residents.
The project, several sections of which are already underway, concerns neighborhoods such as Villaverde, Usera, Vallecas, San Blas and Hortaleza, where there are real prospects for real estate appreciation in the medium term.
Investing in these areas in anticipation of landscape transformation could represent a strategic opportunity for budget-conscious buyers.
These massive investments reflect a clear commitment to modernizing Madrid in a way that is sustainable, equitable and attractive to investors.
A fast-growing real estate sector
Madrid real estate booms
Caption: The temperature of the Madrid market.
Source : Fotocasa
In a post-Covid context where investors usually prefer safe markets such as London and Paris, Madrid has achieved a real feat. According to the PricewaterhouseCoopers study, it moved up from eighth to second place among the most attractive cities for real estate between 2020 and the end of 2024, relegating Paris to third place.
Caption: Madrid, Europe's second most attractive city for investment
Source : PWC
Almost half of all real estate purchases in the Community of Madrid were made in the capital, with 7% by foreigners. But this figure is set to rise in the coming years.
Real estate in Madrid, key figures
Legend: Purchase price trends in Madrid since 2006
Source : Idealista
In Madrid, purchase prices have been rising steadily since the end of the pandemic. In spring 2025, the average price reached €5,467/m², an increase of 24% in 1 year.
Square meter prices have soared in the capital's most sought-after neighborhoods.
Rental update
Here too, the curve is clearly upwards. In one year, rents have risen by almost 12% in the city, reaching €21.4/m2, €10 more than the national average.
Legend: Madrid rental prices since 2006
Source : Idealista
According to the latest data from Global Property Guide, Madrid is one of the most attractive European capitals for rental investment, with an average gross yield of 4.82% in the first quarter of 2025 for apartments, and returns ranging from 2.76% to 6.63% depending on the district.
Madrid's suburbs and student residences can offer peak yields in excess of 6%. This level of profitability puts Madrid well ahead of cities such as Paris and London, where rental yields generally fluctuate between 3% and 4%(Idealista).
This dynamic is due to strong rental demand, driven by students, young professionals and expatriates, as well as the region's economic vitality.
A dynamic, structured real estate market
Digital technology for investors: Portal del Suelo 4.0
For several years now, the Community of Madrid has been offering a unique initiative: the Portal del Suelo 4.0a free digital platform that lists all public land plots available for purchase or concession in 47 municipalities in the region. This tool gives investorsreal-time access to information on available residential, industrial and commercial land, guaranteeing a level of transparency and legal certainty unprecedented in Spain.
Caption: Suelo 4.0
Source: Comunidad de Madrid official website
Madrid commits to affordable housing with Plan Vive
Visit Plan Vivelaunched by the regional government, is a major public-private project to build 13,000 affordable rental homes by the end of the legislature. As of March 2025, 3,300 homes have already been delivered, 5,000 are under construction, and 4,500 will be specifically reserved for young people under 35.
The plan has already generated over €1 billion in investment and created 25,000 direct and indirect jobs. Further proof of the region's commitment to boosting the rental market while containing rent increases.
Tax advantages
Mbappé Law: thank you soccer...
The Community of Madrid recently approved a reduction in the regional portion ofIRPF (personal income tax) for new tax residents from abroad. The aim is clear: to attract talent and capital. The "Mbappé Law" came into force in January 2024.
- It applies to people who have not been resident in Spain for tax purposes for the previous five years and who establish their residence in the Community of Madrid.
- It offers a 20% personal income tax deduction for certain investments.
- Beneficiaries must maintain their investment and tax residence in the region for at least six years.
An even stronger regional tax policy in 2025
Other tax measures support real estate investment:
- A €1,000 tax reduction for owners renting a vacant property for at least 3 years.
- A deduction for renting out a principal residence has been extended to 40-year-olds.
- Help to offset rising interest rates for primary residences.
- Substantial reductions on legacy transfers for large families, young people under 35, etc.
- A reduction in gift and inheritance tax from 25% to 50% for certain heirs.
Future prospects
Madrid is resolutely looking to the future, with ambitious projects such as "Madrid Nuevo Norte". It is the most ambitious urban transformation in Europe, with 25 billion euros of public-private investment committed, and is expected to generate over 300,000 jobs.
In 2025, the first redevelopment work (roads, access) began, paving the way for the launch of the first housing units in 2027.
https://www.youtube.com/watch?v=xV8aoeRVUWA
Madrid also relies on its citizens: 50 million euros of participatory investment
Madrid is not content to impose projects from above: it relies on citizen participation to guide its development.
In 2025, Madrid residents were able to vote on the allocation of 50 million euros from the municipal budget through a participatory democracy process. These projects, included in the 2026 and 2027 budgets, are aimed at improving local facilities in neighborhoods. This creates a bond of trust with residents, and reinforces the long-term stability of residential areas - a new positive signal for investors seeking security and urban coherence.
Conclusion
Madrid's undisputed attractiveness has made it a major hub for international real estate investment. Its ability to attract foreign capital in a variety of sectors is testament to its economic robustness and long-term potential. For investors looking for growth, stability and attractive tax rates in Europe, Madrid ticks all the boxes in 2025 - and probably beyond.
FAQ - Investing in Madrid in 2025
Why has Madrid become a major center for real estate investment?
Madrid attracts investors thanks to its strong economic growth, advantageous tax structure, political stability and world-renowned quality of life.
What are the most promising real estate sectors in Madrid in 2025?
Residential real estate in neighborhoods undergoing transformation, luxury real estate, offices, student housing and coliving.
What is the average rental yield in Madrid?
The average gross yield is 4.82% at the start of 2025, with peaks of up to 6.63% in outlying districts and student residences.
What major urban projects are boosting Madrid's appeal?
Madrid Nuevo Norte (25 billion euros, 300,000 jobs), Bosque Metropolitano (75 km of green belt), Plan Vive (13,000 affordable housing units), and over 600 urban projects underway by 2025.
Is it easy for foreigners to invest?
Yes, Madrid accounts for 72% of foreign investment in Spain. The city provides tools such as Portal del Suelo 4.0, which facilitates access to public land for residential or industrial use.
What tax measures will be of interest in 2025?
The Loi Mbappé allows a 20% deduction on IRPF for new residents. Other measures include exemptions on transfers, deductions for long-term rentals, and reductions on inheritances and gifts.
Which neighborhoods have seen the biggest price rises?
The Salamanca and Chamberí neighborhoods posted year-on-year increases of between 20% and 25%, driven by their attractiveness and strong demand.
What are the growth prospects for the next few years?
Madrid should continue to grow thanks to its booming economy, solid rental demand, favorable tax policy and major urban projects currently underway.
Sources: Idealista, PWC, INE, Expansion, Fotocasa, Comunidad de Madrid
