Madrid ranks as the second European city preferred by foreign capital for real estate investment, just behind London, according to a report by Houlihan Lokey. Investment in Spain has grown by 40% year-on-year.
Madrid has climbed to the second position in the ranking of European cities favoured for international real estate investment, according to the latest report from investment bank Houlihan Lokey. The Spanish capital is only surpassed by London, while Barcelona occupies fourth place, ahead of cities like Milan, Paris, Amsterdam, or Berlin.
The report highlights that the volume of investment in Spain has surged by 40% year-on-year, only behind Belgium's 52%, the big surprise of the continent. Across Europe, investment rose by 10% to €177 billion, with the UK, France, and Germany accounting for almost half of the activity.
Luxury offices and rental residential drive the market
The extraordinary dynamism of Madrid and Barcelona is supported by two pillars: the scarcity of high-quality offices in the central business districts (CBD) and the rise of the rental residential sector. In the CBDs of both cities, the tight supply has driven office rental prices to historic highs, attracting international funds seeking prime assets with environmental certification.
Meanwhile, the 'living' sector — which includes rental housing (build to rent), student residences, and flex living — has taken the lead in investment activity. Faced with difficulties in accessing home ownership, institutional investors are focusing on financing projects that offer stable rents and growing demand.
The logistics sector also reached a historic peak in absorption, driven by the redesign of supply chains, operating practically at the limit of available supply. Additionally, luxury tourism and the rollout of infrastructure for data centres complement the investment appeal.
Foreign capital looks to Spain while Germany stagnates
The report underscores that Spanish growth contrasts with the stagnation of other major European powers. While traditional markets like Germany suffer stagnation due to high interest rates, Spain has consolidated a cycle change supported by the strength of its rents and high cross-border demand.
Cross-border capital inflows maintained a share of approximately 45% of total European activity in 2025, with sustained appetite from North American and Asia-Pacific investors, as well as a reactivation of capital from the Middle East. Investment funds focused specifically on Europe managed to raise 20% more money, reaching €35 billion for future purchases.
For Madrid's neighbour, this translates into a greater supply of quality rental housing — albeit at high prices — and the modernisation of the office stock, which can attract companies and generate employment. However, it also puts upward pressure on housing costs in the most sought-after districts.
The Houlihan Lokey report positions Spain as one of the most attractive and resilient destinations for cross-border capital in a context of global volatility. The forecast is that the flow of investment will continue to rise in the coming months, consolidating Madrid as a key European hub.
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