The Spanish property market continues to be positioned as the most profitable asset for investors. But what happens if the numbers don't add up? If the asset is underutilised or is not providing the expected or desired return, it can be converted into residential property., that is, adapting their use. An example of this practice is converting premises and offices into tertiary-accommodation assets, which can then be used for residential rentals, providing a viable outlet for temporary or long-term periods.
This change of use also makes it possible to develop projects in the living sector. (a rental formula with shared common services) on land designated for tertiary use, although this depends largely on the urban planning regulations in force in each territory.
Where this is possible, we find developments that are more successful than they would likely have been if the land had been allocated to the tertiary sector.
In this regard, the residential developments that are working best are the conversions of entire office buildings into co-living projects, which can also include other services such as leisure spaces and co-working areas.
When did the trend towards residentialisation begin?
The boom in this phenomenon of changing the use of tertiary assets occurred between 2017 and 2018, when many traditional residential assets were converted into tourist accommodation.
Alternative living models (co-living, senior living, build-to-rent) began to gain momentum in 2019., and since then they have continued to grow. It is here that we see that the residentialisation of tertiary assets is developing more rapidly and will continue to do so in the coming years, as demand is responding to this model.
What the legislation says. The regulations do not contemplate the possibility of developing residential solutions on land intended exclusively for tertiary use. However, they do allow for the provision of housing services or spaces intended for tourist use in tertiary use, although there are communities that are adapting the regulations with regard to this type of asset and offering greater certainty.
That is why assets allocated to the residential sector are proving viable for development on tertiary land in high-demand areas, mainly in Madrid and Barcelona, and to a lesser extent in other major capitals, as well as in coastal areas that are more likely to attract tourism.
What is the expected return? In general terms, both the cost of adapting the asset and the expected return on the change of use vary greatly depending on the conditions of each of the micro-markets (both tertiary and residential) in the areas where this type of operation is being considered. That is why it is so important to consult a specialised company before undertaking a possible residential conversion in order to analyse its viability.