Madrid’s position as the engine of growth for foreign investment in Spain has been reaffirmed by figures from the country’s Ministry of the Economy. Last year, the region attracted €10bn in FDI, 46.5% of the national total, placing Madrid well ahead of Catalonia, its closest rival among Spain’s 17 autonomous communities, which was ranked second with €4.7bn.

“This did not occur by chance,” says Cristina Cifuentes, president of the regional government. “There are very sound reasons why Madrid is the region of choice for investors. First, we are investor friendly in all respects and offer advantages that are highly valued in the business world.”

Among these incentives, Ms Cifuentes highlights the city’s history of social and political stability, as well as its wide pool of highly qualified professionals. “Our infrastructure is second to none, we take pains to provide a minimum of bureaucracy and entry cost is low for anyone wishing to set up or invest in a business,” she says. “We also operate the lowest income tax regime of any Spanish region, hence potential business customers have a greater level of disposable income than elsewhere in Spain.”

The ease of setting up in Madrid is reflected in the fact that in 2015, nearly 100,000 companies opened in the region, 20% of the national total. “All these factors explain why Madrid is the only region in mainland Spain to have recovered its pre-recession level of output,” says Ms Cifuentes. “This has gradually enabled us to return to the level of employment we enjoyed before the 2008 crash. The unemployment rate is now almost five percentage points below the Spanish average and we are creating more than 100,000 jobs every year.”

Pool of talent

Investors have recognised the merits of Madrid’s skilled workforce, particularly in the field of new technologies, in which the region serves as headquarters for nearly one-quarter of Spain’s hi-tech companies. “Venture capital funds have been taking a close look at digital and internet-related companies,” says Javier Ulecia, chairman of Bullnet Capital. “In Madrid it’s easy to find talent and at a significantly lower cost, for instance, than in Silicon Valley. Staff turnover is also a good deal lower in Madrid and this facilitates long-range planning. Madrid is attractive for investment, as it’s the country’s epicentre, financially, politically and in almost all other respects.”

Several of Madrid’s digital success stories have attracted foreign capital investment, mainly from the US. AlienVault, a developer of solutions to manage cyber attacks, was founded in Madrid in 2007 and raised an initial $116m in funding. Last year, venture capital firms invested another $52m in the company. CartoDB, a cloud computing platform, was a Madrid start-up that raised $7m in venture capital financing in 2014 from a consortium of investors, along with an additional $23m last year.

Ms Cifuentes has targeted R&D as high-priority sector for investment. “We have nearly 50,000 people involved in R&D projects across the region,” she says. “This represents 23.2% of the total Spanish workforce employed in hi-tech activities. We are particularly interested in bringing investment into high-value-added industries such as aerospace, biotech and information technology. We are also determined to promote start-ups in all areas of new technologies.”

Amazon has selected Madrid as the site of its new software development centre, for the design of functionality and services for the company’s five European web and mobile applications. “Spain has a large pool of talented and creative engineers,” says Terry Hanold, international vice-president of Amazon Web Services. “We are delighted to build a technical team in Madrid, one that is capable of developing new functionality for our customers in Spain, Europe and across the world.” Amazon’s new software development operations will share 1,700 square metres of office space in Madrid’s city centre with B2B, the company’s only technology hub located outside the US. 

Property surge

Madrid mayor Manuela Carmena considers property and construction to be two dynamic areas that have made a strong comeback after eight years at a standstill. “I would place real estate at the top of the list for investment,” she says. “This has truly taken off and all indications point to sustained future growth.” Ms Carmena says the level of foreign investment in commercial property since 2014 has outstripped that of the previous 12 years. “Real estate has brought in twice as much foreign investment as the financial services sector, which ranks second,” she says. “If construction is factored in, we are talking about 25% of all foreign investment in Madrid.” 

Venture capital has also been an active player in Madrid’s property market. CBRE Global Investment Partners and IBA Capital Partners have jointly acquired the ABC Serrano shopping centre for €100m, along with a prime retail site in the city centre, totalling 16,000 square metres.

The resurgence in consumer affluence and disposable income has thrown up opportunities for investment in shopping and leisure activities. Ikea is spending nearly €100m on the expansion of its flagship store in Alcorcón, on the outskirts of Madrid. The project will add some 17,000 square metres of floor space to its existing shopping centre.    

Let the people come

Madrid has in recent years emerged as a major tourist destination. The number of domestic and foreign visitors in the past 15 years rose by 1.5 million to some 4.5 million. This has opened up opportunities for investment, particularly in the hotel industry. “Put simply, we need more hotels,” says Ms Carmena. “We’ve seen a surge in investment over the past five years, most notably in the €130m sale of the Hotel Ritz.” The luxury hotel was acquired by Hong Kong’s Mandarin Oriental in a joint venture with the Saudi Olayan Group. 

Ms Cifuentes says that the positive outlook for tourism has encouraged investment in the hotel business. “Madrid has become a high-priority destination for investors, with total flows last year at a record €582m,” she says. The number of hotels in the Madrid region rose by 45% to 1147, mainly in the three- to four-star category. 

Starwood Hotels and Resorts Worldwide, which plans to invest €500m in Spain over the next three years, will open one of its W hotels in Madrid in 2018. This will be the first of this brand in Madrid, and the second in Spain. “The opening of the second W hotel demonstrates the huge demand for this innovative lifestyle brand in such an important travel market,” says Michael Wale, president of Starwood Hotels and Resorts in Europe, Africa and the Middle East. “When W Madrid opens its doors, Spain will become the only country in Europe to boast two W Hotels.”

One of the most eye-catching deals was Wanda Group’s €265m purchase from Banco Santander of the Edificio España, a 65,000-square-metre shopping centre and apartment block. China’s largest private property developer plans to turn the 25-storey building into a shopping centre and luxury apartments.

The tourism boom extends across the entire country, according to the secretary of state for tourism, Isabel Borrego. “Spain ranked top of the list of 141 countries in the 2015 Travel and Tourism Competitiveness Index published by the World Economic Forum,” she says. “Over the past five years the number of foreign tourists coming to Spain has risen by 11 million to more than 60 million visitors in 2015. This growth has raised investor interest to the extent that last year we saw 143 hotels change ownership. Hotel investment was 2.5 times higher in 2015 than in the previous year.” Ms Borrego says the government’s objective is to direct this interest towards regions which until now have been off investors’ radar, such as Murcia and Galicia, which offer “huge potential” for golf and other leisure activities.

Asian links

Spain is also opening up to tourist markets in Asia, which in turn is focusing investor attention from China and Japan on the Spanish market. “New direct flights from Madrid to cities such as Hong Kong, Shanghai, Hangzhou and Tokyo are boosting tourism from these countries,” says Ms Cifuentes.

Spain's secretary of state for trade, Jaime García-Legaz, sees a promising future for Asian business in the industry, with the inauguration of the Yiwu-Madrid rail connection, a 13,000-kilometre network linking Spain to China’s commercial centres. “This is an important step forward in bilateral trade relations and foreign investment,” he says. “The journey time is now only 16 days, with a cost of about $1800 per container, a highly competitive rate compared with sea transport.”

Rocío Güemes, director of promotion agency Invest in Madrid, adds: “Madrid is Europe’s gateway to Latin America and its 600 consumers. Working through a Spanish company facilitates the transfer of business practices into this market. Latin American businesses will likewise find it easier to deal with a Spanish company than a UK or other European parent.”

José Carlos García de Quevedo, executive director of Icex, the Spanish Institute for Trade and Investment, says foreign investors are seeking synergies for investment in Latin America and the EU, as well as north Africa and the Middle East. “We can serve as the platform to access these markets,” he says. He agrees that Madrid tourism and property are major attractions for foreign investors. “The tourism sector can cope with the current boom, but there are certainly opportunities to expand the existing facilities, especially in the area of luxury tourism. As for property, next year Four Seasons will open its first hotel in Spain in Madrid. This is part of a €500m redevelopment project to create a prestigious retail and gourmet space in the city centre,” he adds.