Can a Madrid in flux balance traditional charm and new energy?
The capital has recently become the most expensive city in Spain per square metre — and change is happening fast. Some are questioning if its identity is in jeopardy
“Justicia is like the West Village 20 years ago,” says investment consultant John Prunier, who moved to Madrid from New York with his wife Csilla and 12-year-old daughter just over a year ago. “We’d been to Barcelona, but instantly preferred the cultural ballast and more distinctively Spanish feel of Madrid.”
Eschewing the American school for the British Runnymede College so their daughter could be among predominantly Spanish peers, the couple chose to buy in the barrio of Justicia because they felt it was more Spanish than “touristy” Salamanca, where they had first rented. “We have made lots of Spanish and Latin American friends,” says John. “We assumed good affordability on our US budget, but house prices have risen fast . . . and the Spanish have been dispossessed from barrios like Salamanca.”
Demographics and financial dynamics are rapidly changing in a capital city that for many years seemed to embody tradition: “Madrid de toda la vida.” Long undervalued by investors, it has recently overtaken the Basque resort of San Sebastián as the most expensive city in Spain per square metre, according to Tinsa, the valuation company. The average price of prime property in the third quarter of 2025 was €14,900 per sq m, up from €11,657 in the same period of 2020, according to Knight Frank — though still significantly less than London or New York.
The question of how strongly the traditional ethos can prevail in some barrios in the face of shifting local populations and gentrification is a question on the lips of many. Can a Madrid in flux balance traditional charm and new money?
“People are coming here for beautiful architecture, culture, the Madrid way of life,” says Ana White, of Knight Frank Madrid, who is currently helping a couple of C-suite clients with budgets of €10mn relocate from London. “Dubai is not for everyone.”
The city’s mix of stately buildings — neoclassical, baroque, beaux-arts — offer an understated refinement that also distinguishes its nightlife and myriad Michelin-starred restaurants. There’s a gentler energy in the city of world-class art institutions and serene parks than the avant-garde drama of Barcelona.
An added attraction for wealthy entrepreneurs and remote workers is the “Beckham Law” special expat tax regime that allows new arrivals in Spain to pay a flat tax rate of 24 per cent on Spanish-sourced income up to €600,000, instead of the higher progressive resident tax rates — for six years.
As the economic hub of Europe’s fastest-growing major economy, the city’s population is increasing faster than Barcelona’s, according to INE, the national statistics office. Prestigious institutions such as IE University (which is expanding its campus) and its IE Business School are also helping to draw a steady stream of wealthy Latin American families, digital nomads and, increasingly, North Americans. The latter were the fastest-growing group of foreign buyers in Spain in the first quarter of last year, according to the Spanish Land Registrars, up 57 per cent year on year. They also lead foreign rental demand, according to Idealista.com.
With a rise in population has come a rise in prices in the central districts that are the first stop for many wealthy arrivals. In the past five years, they have jumped 61.3 per cent in the leafy district of Ibiza, close to Retiro Park; 52.2 per cent in Jerónimos, another upscale district close to the park and the trio of art galleries; 35 per cent in the aristocratic embassy district of Almagro (Chamberí); 27.4 per cent in Justicia, according to Knight Frank. “Latin Americans love Salamanca, but North American buyers choose the authenticity of local life: Justicia, Cortes or Ópera,” adds Valeria Cimonetti of Driven Properties, an agent who also recently relocated a family from New York.
Recoletos in Salamanca increased by a relatively modest 21.9 per cent in comparison — for some, this upscale district of graceful buildings next to Retiro Park, where apartments cost €16,000-€20,000 per sq m, has lost a little of its shine. “Extraordinary prices were being asked for very average properties [in Salamanca] so there’s some [price] adjustment due,” says Alex Vaughan, co-founder of agent Lucas Fox.
Vaughan also emphasises that the Madrid market is still predominantly driven by Spanish buyers — foreigners comprised 14.6 per cent of the market between October 2024 and September 2025, according to the Spanish notaries association.
Still, developers are accelerating change to keep pace with international tastes. The Four Seasons Hotel kick-started a handful of branded residences in the city, including SLS Madrid Infantas, Banyan Tree Padilla and Mandarin Oriental.
A number of buildings with beautiful facades and wrought-iron balconies in the Cortes area, also known as the Barrio de las Letras (the city’s literary quarter), are being repurposed. Casa Lamar, on Calle de Cedaceros, a narrow historic street, features 22 high-end residences with interiors by Patricia Urquiola, costing from €2.3mn.
While some question if developments like these are a direct challenge to Madrid’s cultural integrity, Henri Hottinger, of Lamar Development, argues that they bring with them much-needed regeneration. Of Casa Lamar, he says it will be good to see this repurposed office building draw residents back to the area. The luxury heritage is there, with “historic businesses” such as Lhardy restaurant, opened in 1839, and Camisería Burgos, a tailor’s, operating since 1906,” he says — but it needs supporting.
Not all of Madrid’s long-established businesses have survived recent challenges. Between 2020 and 2024, more than 7,000 neighbourhood shops in the Madrid region closed, according to INE. In some barrios, such as Lavapiés, Tetuán and Malasaña, it’s particularly painful to see.
The residential reimagining is also part of a wave of openings — new to town are The Hoxton, a branch of the east London hotel brand, a Nobu hotel and, from acclaimed local hospitality company Grupo Paraguas, a restaurant, boutique hotel and London-style members’ club in the striking Metropolis building.
Helen Wilkins first moved to Madrid from the UK in 2006 and can hardly recognise her old street in Tetuán. “There are skyscrapers and construction everywhere,” she says. “Old Spanish bars have been displaced by matcha places.” She was nevertheless drawn back to Madrid after a stint in Barcelona, and now rents a house in Carabanchel, a district outside the M-30 ring road close to Alkor College, her son’s school.
“I love the sense of community in Madrid and how safe I feel compared to Barcelona,” says Wilkins, who set up Level Up Sports, a female-focused events company. But she is aghast at the rising cost of renting in the city. “It doesn’t help when digital nomads post on Facebook looking for a flat for ‘only’ €3,000 a month,” she says. In 2014, she paid €750 for a two-bedroom flat in Tetuán; now it costs €2,400.
Many landlords have been shifting to contracts of less than 11 months to get around new rent controls on long-term lets, says Mari Cruz of rentals agency Peace of Mind. “They can increase the rent due to strong demand from digital nomads.” In the digital-nomad-popular area of Recoletos, two-bedroom, two-bathroom apartments typically cost €6,000-€7,000 per month, she says.
Leah Pattem has lived in the district of Lavapiés for 12 years; on her website, Madrid No Frills, she blogs about the city’s policy of allowing “vulture capital funds” to acquire buildings, causing the eviction of tenants. “Lots of my friends are paying 50 per cent of their salary on rent or having to move out,” she says. “Gentrification is displacing the [local] people that make Madrid what it is.”
Some property investors may be on borrowed time, however; if Madrid introduces tax measures like those in Catalonia, it has the potential to become a less tempting place to invest. Catalonia’s new progressive rates of property transfer tax (Impuesto sobre Transmisiones Patrimoniales, or ITP) mean that property of more than €1.5mn is subject to 13 per cent purchase tax; there is also a new 20 per cent rate for large-scale investors. In the Madrid region, ITP is currently 6 per cent.
“We see a lot of buyers from other Spanish cities such as Barcelona or Bilbao who see Madrid as a good investment,” says Yolanda Rueda Paneque, head of new developments at Savills Madrid. The extra taxes would make the market less attractive from an investment perspective by reducing expected returns, she says. She admits that it can be hard for a city in flux to keep its “unique” brand. “But Madrid has to change to keep up with other cities attracting the international market.”
Part of the city council’s rethinking of urban strategy is to increase the amount of housing and balance it with the new luxury projects, says Angela Baldellou, director-general of Madrid’s College of Architects. “It is a very big challenge. But Madrid has room to expand.” New housing projects include those in the district of Nuevo Norte in Chamartín and Valdecarros on the south-east fringe.
And while some wealthy residents seeking bigger homes near international schools are choosing to move out to affluent suburbs such as La Moraleja, Pozuelo or Boadilla, others have had their hand forced to move further out.
After renting in Barrio de las Letras for 12 years, Madrid-born Jaime has bought a home in Adelfas, next to the M-30. “When I found myself living next to blocks of Airbnb flats, I decided to get out,” says the engineer, who prefers not to use his full name. “Traditional businesses will lose their local regulars who have to move out to suburbs. I like the fact that the city has more international faces, but it doesn’t feel like it belongs to us any more.”