Earlier this year, Raquel García began looking for a starter flat to buy in Madrid. With budget of €200,000 she was hoping to move out of the rented flat she was sharing. But after visiting 15 properties, Ms García, 31, cut short her search.

“For that [money] you get a dump, a basement apartment without light,” she says.

“What we are seeing now is a lot of investors coming who see it’s a good investment to buy flats and remodel them and put them on Airbnb . . . you can’t compete with that.”

Indeed, prices per square metre in central Madrid rose more than 15 per cent in the 12 months to October, and by nearly 20 per cent in some central Barcelona areas, according to Fotocasa, the property site. With the sales market out of reach, Ms García moved to a less expensive shared apartment to put away more savings and wait.

Ms García’s story is a common one among Spain’s millennial generation. The country’s protracted economic downturn means many do not have the savings to buy an apartment or, after seeing friends or relatives evicted during the slump, the desire to do so.

These young Spaniards have in turn flooded the rental market, causing rents to soar — up 25 per cent in Barcelona and 27 per cent in Madrid in the past two years, according to Idealista, the property site. They have also attracted a growing number of investment vehicles aimed at the rental sector, from crowdfunding sites to real estate funds. “There is a big appetite to invest in this — to rent to people and get a solid return,” says Adolfo Ramírez-Escudero, chief executive of CBRE Spain, the property services company.

About 1m apartments have been added to the rental market in the past decade, he says, increasing the percentage of housing dedicated to rentals from 10 per cent to 22 per cent. Spain still needs to build 1.2m rental units to satisfy demand from young people, says Concha Osácar, founding partner of Hispania, a Socimi, or Spanish real estate investment trust. This tight market has attracted attention from investment vehicles such as Hispania, which has 730 homes in a portfolio that also features commercial properties, including hotels and offices.

The largest purely residential player in the market is Testa Residencial, another Socimi, which has a portfolio of 9,000 rental units and is expected to begin trading on the public market in 2018.

Smaller investors who want to buy to rent but do not want to manage an apartment themselves can choose from a growing number of crowdfunding sites that raise money to buy and renovate properties, then sell them after several years on the rental market. Gonzalo Ruiz Utrilla, 34, is one investor who has seized on this trend. He invested in rental properties offered through Housers, a Madrid crowdfunding site that started in 2015. So far he has invested €60,000 in 30 properties in Madrid, Barcelona, Valencia and Milan. He says he has made a return of 6 per cent a year on rent and expects an additional return when the properties are sold. “I have my wealth in the cloud — it generates income and I can live where I like,” says Mr Ruiz Utrilla.

Recommended Spain’s construction sector rises from the ashes Spain’s Neinor Homes jumps on market debut Spain’s property market rallies in Barcelona, Madrid and Valencia Housers co-founder Tono Brusola says that 20,000 people have put money into at least one of his site’s 200 investments (40 per cent invest the minimum of €50). The projects that have completed the cycle have paid out a net annual profit of about 9.5 per cent. Carles Serradell, founder of the Barcelona-based Inveslar crowdfunding site, says that of the nine investments the site has made, two have been sold, returning an annual profit of more than 17 per cent.

There are, though, signs that post-crisis rental profits have peaked. “Profitability is going down, as there is a big flow from fixed investments to real estate from the big funds. What we’re getting now will be difficult to continue,” says Mr Serradell. What impact the recent unrest in Catalonia will have on prices there, and whether it will spread to the rest of Spain, remains uncertain. “In Barcelona, the pace of growth has slowed, as we were seeing increases of 20 per cent and now prices are growing at a rate of 17 per cent,” says Beatriz Toribio, head of research at Fotocasa. Ms García, for one, is happy to see a slowdown in price rises. “I have some money and I’m saving more. I’m in no rush,” she says.