DWS sees student housing and flex living as top investments in Spain

The firm describes the economic outlook for the Iberian Peninsula as positive but warns of a mismatch between supply and demand.
Student residenceMagnific

The rebound in tourism, the rollout of European funds and sustained immigration continue to support the economies of Spain and Portugal, which are currently weathering the crisis caused by the war in Iran. These factors have led DWS to describe the economic outlook for the Iberian Peninsula as “positive”in its latest Real Estate in the Iberian Peninsula report, which identifies two standout investment opportunities: student accommodation andflex living – rental models designed for stays ranging from a few days to several months.

According to DWS, although the contribution of some growth drivers may gradually ease over time, the outlook for the coming years remains favourable. “The strength of private consumption, supported by continued job creation, rising real wages and government transfers that support household income despite inflationary pressures, points to sustained economic improvement,” the report states

The study also notes that Spain’s residential sector is currently facing significant pressure after several years in which household growth has outpaced housing supply. As a result, rental growth is expected to moderate compared with the exceptional increases seen in recent years, meaning investors will need to be more selective to achieve stronger returns

In this environment, investment in affordable housing developed in partnership with local authorities could provide an attractive entry point, offering stable income growth even if returns are somewhat lower than those available in the wider market

Specifically, the report highlights that the imbalance between supply and demand has pushed rents more than 40% above pre-pandemic levels, particularly in Madrid and Barcelona. As a result, DWS sees some of the most attractive opportunities in affordable housing projects, student accommodation and flex living schemes, which cater to growing demand for flexible stays of days, weeks or months

Limited supply

Demand in these sectors is expected to be driven by rising <a href="https://jiuniversity.com/lea-walkers-study-abroad-trip-though-lamar-university/” title=”Lea Walker's study abroad trip though Lamar University”>university enrolment levels in major South American countries that traditionally send students abroad, while the supply of purpose-built student accommodation (PBSA) in Spain remains limited. DWS notes that the shorter lease terms typical of this segment require operators to adopt a summer strategy to generate income throughout the year. However, only the most central locations can capture significant tourist demand, particularly in Madrid, which is generally a less prominent summer destination than Barcelona.

Meanwhile, the flex living sector is developing from a relatively small base, mainly in the key cities of Madrid, Barcelonaand Lisbon, where there is strong demand for short-term accommodation for both business and personal purposes. According to DWS, the operational complexity of the sector, combined with the need for upfront investment in most projects, means that entry yields are often around 100 basis points higher than those of conventional residential assets. This creates potential for yield compression as properties become established and reach stabilised occupancy levels.

European market

Regarding the outlook for the European property market, 2026 began with a strong recovery – with yields compressing and prime rents reaching record levels. However, the conflict involving Iran has led to a pause in momentum. “Higher inflation and rising financing costs have dampened investor sentiment. Transaction volumes fell by 10% in the first quarter, while markets experiencing yield compression saw rates fall from between 15% and 20% to just 2% in May,” the report states.

DWS’s core investment thesis, however, remains unchanged. “New supply is at historically low levels, while construction costs have pushed development expenses so high that replacement rents now far exceed current prime rents. At the same time, cities such as London, Dublin and Madrid continue to record population and employment growth. The conflict has further intensified supply constraints by increasing construction costs, reinforcing upward pressure on rents in the most liquid markets.”

Looking ahead to the second half of 2026 and into 2027, DWS forecasts a resumption of the recovery, provided the conflict does not escalate into a broader systemic crisis and inflation returns to around2% in the eurozone

“Residential and logistics remain the strategic pillars, with value-add residential assets offering the greatest return potential. The recovery is unlikely to be linear, but current market positioning points to a prolonged cycle of above-average returns,” the firm concludes

Real estate investment
Student accommodation

Source: www.idealista.com