Costa del Sol Outpaces Cote d’Azur, Italy, and Portugal in Foreign Investment and Capital Growth, According to Directimo Study

• Amid European economic uncertainty related to the stock market and traditional real estate, fueled by inflation and the Ukraine conflict, investors are shifting their focus to vacation home properties in South West Europe. The growing appetite for a remote premium and luxury lifestyle contributes to their decision.

• Costa del Sol, Spain, recorded the biggest growth in foreign investment last year, outperforming established markets in the holiday property sector, such as Cote d’Azur. Portugal’s regions have emerged as a fresh option for second home and vacation property investments, providing a robust alternative to Costa del Sol.

Directimo, the proptech European start-up pioneering data-driven insights and buyer-centric guidance into vacation home markets, launches its first comparative market report analysing the landscape of investments in Europe’s premier destinations for second homes and vacation properties.

The comparison refers to the South West European vacation home markets and reveals that, at the end of August 2023, prices on some European islands have risen by up to 30%, while in Costa del Sol, the most sought-after destination on the mainland, annual growth is 11.7% across the region.

Main insights, according to Directimo research

Costa del Sol, in Spain, witnessed a 22% increase in foreign investment in 2022, driving an impressive 11.7% capital growth. The trend continued during the summer of 2023, with an average property value increase of 2.9% for the last three months. Strong Airbnb occupancy rates in the area provide an additional opportunity for rental income, reaching up to a net 5%. This results in an annual average return on capital of 17%, with the potential to reach as high as 20% in new developments.

Portugal‘s regions have consistently emerged as an appealing option for second home and vacation property investments, presenting a robust alternative to Costa del Sol. Notably, Faro (Algarve) witnessed an impressive 13% capital growth, while the Lisbon area experienced stagnation.

Historically a very attractive area for premium and luxury vacation homes, South France is in a turning point where it needs to demonstrate the ability to continue to attract new projects and investors at the same pace as other European regions, while ensuring a double-digit return on capital. Between July 2022 and June 2023, the PACA region (Provence Côte d’Azur) saw an average capital growth of 3.75%, amidst an 18.8% decline in trading volume.

Italy is facing a significant national challenge in terms of demographic decline, exerting substantial pressure on residential and vacation home prices, which continue to decrease. Nevertheless, renowned areas like Como are leveraging their prestigious status, experiencing a 5.2% capital growth rate over the past 12 months.

Investing in vacation home properties on the islands

According to Directimo’s research, Spanish and Portugueseislands lead in capital growth, with 12.4% annual growth rate in the Balearic Islands and 13% in the Canary Islands. The most attractive island from a capital growth perspective remains Madeira, with a 15.9% increase during the last 12 months.

Sassari, situated in northern Sardinia, joins the ranks of the island areas that have delivered investors an average double-digit growth, in addition to any rental income.

The main challenges in the islands remain the limited number of new developments and accessibility, while offering strong investment opportunities.

Willy Dicu, Managing Partner at Directimo, states: “The demand for premium and luxury vacation properties and a buyer-oriented end-to-end concierge service is a reality substantiated by facts and figures in our research. We guide investors and second home seekers through the dynamic landscape, using our integrated insights and expertise to instil confidence in their decisions. Our coverage today includes Costa del Sol, Lisbon, Algarve, and Madeira, with expansion in progress for the Balearic and Canary Islands.” 

Matei Malos, the company’s Head of Product & Research, adds: “We synthesise vast amounts of data into actionable intelligence, providing a roadmap for both individual vacation home buyers and institutional investors. Our innovative methodology revolves thus around a deep understanding and fine-tuning of our customers’ requirements, in the context of a comprehensive market analysis.”

The research is available here*.