Why some funds are stopping investment in rental housing in Madrid
Last Updated on 25 November 2025 by Equipo Urbanitae
In recent years, Madrid has proven its appeal by becoming one of the most attractive capitals for real estate investment, overtaking Paris and securing second place—only behind London—according to a recent study by consultancy firm PwC.
A combination of factors has sparked investor interest, including economic growth, the city’s quality of life, and the arrival of international talent that steadily fuels residential demand.
Madrid: The Gem That Captivated International Investors
After the 2008 crisis, major investors turned their attention to the capital, which at the time was marked by a market with more depreciated assets, a drop of up to 40% in housing values, and a large volume of opportunities. Several reforms made it easier for foreign capital to enter, allowing Madrid to become one of Europe’s main hubs for real estate investment, attracting billions of euros from funds such as Blackstone, Azora, and Goldman Sachs. Today, these funds still hold a vast number of assets in their portfolios, but something has changed.
In recent years, with rising interest rates and unprecedented increases in land prices, funds are facing lower returns in the Living segment, prompting major investors to shift their focus toward other locations or products.
Price, Profitability, and Regulation Under Scrutiny
The capital is now caught in a loop of skyrocketing demand and stagnant supply: young people find it impossible to buy a home, while the city continues to attract new residents—students and workers alike.
At the same time, new-build housing development remains stagnant. A decline in building permits, slow processing of planning approvals or change-of-use applications, construction costs, and uncertainty over potential regulatory changes are some of the factors weighing down developers.
Meanwhile, the rental stock continues to shrink and the available supply is minimal. This combination structurally limits the amount of housing available. Recent regulations regarding stressed areas and potential tax penalties for empty homes appear ineffective, as investors have gradually begun withdrawing their rental properties and selling them to private buyers instead. This has already happened in Catalonia, where the residential rental supply fell by nearly 15,000 homes—Barcelona leading the decline with almost 7,000 fewer rental units compared to 2024.
Madrid, similarly, has seen its housing supply diminish and prices rise: according to a recent report by Tinsa, the price per square meter in the city has increased 10.5% year-on-year, now reaching €4,664 per m². In addition, investors are finding that this increase pushes them to acquire assets at higher prices.
The imbalance between supply and demand is also causing yields to shrink and making previous expectations unrealistic: projects that once generated high IRR percentages no longer achieve the same figures. For example, as reported by Idealista, gross rental yields for residential investment fell in Q3 2025 to 6.9%. In other words, investors are buying at higher prices without rents rising at the same pace.
New Spaces for Real Estate Investment
Despite everything, the data is clear: investment in housing is not at risk. Despite concerns about a chain withdrawal of funds from the capital, CBRE forecasts that real estate investment in Madrid could grow by 20%.
What is changing, therefore, is not the interest in Madrid, residential housing, or the rental market; the focus has shifted toward other segments that allow for portfolio diversification and better alignment with demand, such as coliving and student residences. Both emerging models are attracting capital by offering greater stability and flexibility.
Coliving, for its part, combines housing, services, and flexible contracts. Rapid tenant turnover, scalability, and a community component align with the interests of today’s renters, making it a winning option for new residential developments.
Another booming segment is student housing, driven mainly by the growth in international talent arriving in the capital. Stable lease agreements, guaranteed occupancy, and high returns are some of the reasons investors are turning to these products.
This more diversified model—driven by high returns and more attractive formats—explains why investors are not abandoning the residential market but rather readjusting their preferences toward assets that combine stable demand with a more flexible, operationally adaptable format suited to various stay durations.
