UBS’s annual analysis of this phenomenon highlights an interesting perspective on the Spanish capital. In its Global Real Estate Bubble Index 2024, UBS classifies Madrid as a “city with a moderate bubble risk.”
Madrid presents a moderate housing bubble risk
Supply shortage and pressure in prime areas
Globally, growth in housing prices has been fairly modest. However, cosmopolitan cities like Madrid—particularly in highly sought-after areas such as the Salamanca district, Retiro, or Chamberí— are experiencing a complex housing supply shortage that has led to a price increase of over 5% compared with the 2023 analysis.
Domestic and international investment demand
This shortage is explained by an intensified rise in demand in recent years. The growing interest in Madrid’s real estate market is driving higher investment demand from both Spaniards and international buyers looking to purchase an apartment in Madrid or acquire luxury properties in the city.
This growing demand sets Madrid apart from other major European cities that have recently experienced more subdued growth.
Comparison with other European capitals
While Milan, Italy’s financial center, remains at 2018 price levels due to a market tightened by inflation, Madrid does not follow this Milanese trend. The Spanish capital—booming and on the rise—has recorded a 5% increase in real housing prices (inflation-adjusted) between mid-2023 and mid-2024.
Rents on the rise and profitability
Added to this is a sharp increase in rents, up 15% over the past year, underscoring the rental profitability in Madrid, even in an unfavorable economic context.
Madrid’s position in the UBS Index
Indeed, according to UBS’s Index, Madrid ranks 16th in terms of “bubble risk in real estate markets,” with an increase of 0.56 points (Miami ranks first with a rise of 1.79 points, and São Paulo is last, in 25th place, with a decrease of 0.04).
Warning signs and need for monitoring
Although Madrid is not currently at the epicenter of a property bubble, several warning signs are emerging. The steady increase in housing prices, the notable growth in rents, and the rise in investment demand contribute to a moderate risk of market overheating.
As affordability declines and supply struggles to keep pace with demand, it will be crucial to ensure ongoing monitoring and implement responsible policies to prevent this upward trend from turning into a full-blown bubble.
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