A scarcity of building land scarcity driving up prices in Barcelona and Madrid, say international real estate consultants CBRE, as the building industry gears up for increased demand in the years to come.

“Price tensions” are evident in two of Spain’s hottest markets as developers bid up the price of scarce land, report CBRE. New development is flowering in Barcelona and Madrid after almost a decade on ice.

NEW HOMES INVENTORY

CBRE say there are around 300,000 new and never-sold homes on the market today, but as much as 25% of this stock was built during the boom years in areas of no demand, leaving it out of the market. The inventory for which there is demand will have largely been absorbed by the start of next year (2017), say CBRE.

The regions with the highest potential demand forecast by CBRE are Madrid (25,000 homes/year), followed by Catalonia (14,000), with Barcelona accounting for more than half of that (7,900), the Costa del Sol / Malaga (10,630) and the Balearics (7,500).

A separate study by the appraisal company ST Sociedad de Tasación finds that the supply of new homes for sale in Barcelona could run dry within 12 months, having fallen 73% since 2014, from 2,719 to 725 today, the equivalent of less than one year’s supply, and close to all-time lows. As a result off-plan sales in Barcelona have increased more than 150% since 2014.

FUTURE DEMAND

Nationwide, CBRE forecast that spain will need to build around 180,000 new homes per annum between 2016 and 2025 to meet demand. Barcelona-based business school IESE put the expected demand over the same period at 100,000 per year between now and 2020, rising to 140,000 homes per year after that.

To put those figures in perspective, the average rate of building between 1991 and 1997 was 250,000 homes per year, rising to 580,000 per year between 1998 and 2007. It then fell away to just 75,000 between 2007 and 2014.

PRICE FORECASTS

As a starting point, the price of new homes today in Madrid averages 3,000 €/m2, rising to 10,000 €/m2 at the top end in districts like Salamanca.

CBRE expect prices to rise 6% annually over the next five years, with big regional differences.

IESE also expect house prices to rise, but the nominal 2007 peak price won’t be reached again until 2025, some 18 years after the bubble burst (and only in nominal terms). Spanish house prices rose 19% in 2003, and fell 10% in 2012, peaking at 2,062 €/m2 in 2007, and bottoming out at 1,400 €/m2 in 2014.

Buyers are more demanding today, say CBRE. “Buyers today demand homes with new levels of quality, personalised and sustainable, incorporating energy saving systems, home technology, and good community services,” they explain.