Worx Real Estate Consultants has just shared its analysis of recent real estate market activity in Portugal, taking stock of the first half of 2024 and presenting trends and forecasts for the near future.
“While the investment market in the first half of the year is still conditioned by the European Central Bank’s monetary policy, the occupancy markets have seen a notable recovery in demand,” says Catarina Branco, Research Analyst at Worx Real Estate Consultants.
Below are the highlights of the main real estate market indicators in Portugal.
Investment
In the first half of the year, investment in Commercial Real Estate (CRE) amounted to approximately €660 million in Portugal, 10% below the same period in 2023. This result follows the general trend in Europe, where the volume of investment for the same period was similar to the previous year, reflecting the restrictive monetary policy.
According to data from BNP Paribas, Europe attracted a total of 72 billion euros of investment in commercial real estate, an increase of 3% on the previous year.
Hospitality remains the most sought-after sector for investment, accounting for 40% of the capital allocated to commercial real estate, around 270 million euros. Among the main transactions in the sector were the sale of the Sofitel Lisboa by AccorInvest to Extendam, for 75 million euros, and the acquisition of the Amazónia hotel portfolio by the Real Hotels Group, in a transaction worth between 30 and 40 million euros.
This was followed by the office sector, where investment amounted to 120 million euros, around 20% of the allocated capital, driven by the sector’s main transaction, the sale of K Tower (Parque das Nações) by Krest Real Estate Investments to Real IS A.G., for a value of over 70 million euros.
On the other hand, it is important to highlight the significant increase in demand for alternative assets, especially student residences, which attracted more than 80 million euros in the first half of the year.
As in the main European markets, prime yields in Portugal have remained stable in all asset classes since the end of 2023, due to the monetary policy imposed by central banks marked by high interest rates.
Even so, a possible compression of prime yields is expected between the end of 2024 and the beginning of 2025, due to the easing of this policy, as indicated by the recent interest rate cut by the European Central Bank in June, albeit subject to the evolution of the inflation rate.
Offices
In the first half of 2024, 127,645 sq.m of office space was transacted in Greater Lisbon, spread over 82 operations. After the sharp drop in 2023, this result reflects a substantial recovery in demand for offices, with the volume of take-up in this period surpassing the total recorded in 2023.
Zone 5 (Parque das Nações) and zone 3 (Emerging Zones) were the most sought after due to the three main operations with occupancies above 15,000 sq.m: the sale of Wellbe, the occupation of the whole of Álvaro Pais 2 and the occupation of 15,835 sq.m of Oriente Green Campus.
However, there is a greater appetite for central areas, namely zone 1 (Prime CBD), which saw a substantial increase in the number of deals this semester, compared to the same period last year. Similarly, zone 4 (Historic Center) continues to have the lowest vacancy rate in the market, at around 3%.
In the first half of 2024, the Lisbon market saw 44,420 sq.m added to its office stock, with the completion of EDP 2, EXEO’s Echo building, Marquês de Pombal 2 and two new buildings in Taguspark, all of which are fully occupied. Later this year, more than 90,000 sq.m are expected to be completed, with more than a third already leased and the biggest increases in available area occurring in zone 2 and zone 5.
Around 11 projects are due to be completed in the next three years, representing an increase of 302,064 m², of which around 138,800 m² are already under construction.
Prime rents in the office market have remained stable in all zones since the end of 2023, with zone 1 (Prime CBD) marking €28/m²/month. However, a slight rise in rents is possible in zone 2 and zone 5 by the end of the year with the occupation of spaces still available in new buildings due for completion this year.
Retail
The fall in the inflation rate, coupled with the resilience of the job market and a slight increase in salaries, was reflected in the purchasing power of families, thus benefiting private consumption and the volume of sales in the retail sector.
According to INE data, retail trade showed an accelerating trend in the second quarter, with a 2.8% increase in sales volume, after a slight rise of 0.9% in the first quarter of the year.
The luxury segment continues to be one of the main drivers of high street commerce, as suggested by the recent entry of Italian brand Molteni&C into Portugal, with a store on Avenida da Liberdade.
On the other hand, retail parks are showing particular dynamism, not only in terms of investment, but also in terms of promotion. An example of this is the completion of Arco Retail Park (Santo Tirso, Porto) with 6,600 sq.m and Retail Park Vizela (Braga) with 5,700 sq.m in the first half of the year. Two more assets are expected to be completed this year, namely Penafiel Retail Park and the second phase of Salinas Retail Park.
Prime rents remained stable in general, with street retail in Lisbon marking 130.0€/sq.m/month, still 7% lower than in 2019. Following the same pattern, prime rents in shopping centers are still below 2019 levels, remaining at €95.0/sq.m/month. Retail parks, meanwhile, remain at €11.75/sq.m/month, but above pre-pandemic values as a result of the high demand for this format.
Industrial and logistics
The I&L sector in Portugal totaled 415,556 sq.m occupied in the first half of the year, reflecting a notable recovery in demand, evidenced by a 35% increase over the same period last year. As a result, the level of demand in the first six months of the year even exceeded the total area occupied in 2023.
In this context, it is important to highlight the growing appetite for new spaces, which accounted for more than half of demand in the first half of the year, and which translated into 75% of the area absorbed.
The Greater Lisbon region continues to attract the lion’s share of demand – more than a third – with a total of 162,826 sq.m occupied. The Greater Porto region captured almost 20% of demand, with 76,104 sq.m placed.
The lack of product to meet new demand continues to encourage the promotion of new projects, an example of which was the completion of 6 projects in the first half of the year: Santos e Vale’s logistics platform in Maia, the first phase of Benavente Logistic Park, Ermida Park (Santo Tirso) and DPD’s Distribution Hub in Loures.
Also this year, 14 projects currently under construction are expected to be completed, adding more than 780,000 sq.m to Greater Lisbon’s stock and more than 93,000 sq.m to Greater Porto’s stock.
In the 2nd quarter of 2024, prime rents remained stable with Zone 1 (Castanheira Azambuja) scoring 5.0€/sq.m/month and Zone 3 (Lisboa Cidade) scoring 6.50€/sq.m/month.
“Despite the attractiveness of the different sectors ensured by robust levels of demand, we should only see a strengthening of the investment market at the beginning of 2025, with possible additional cuts in interest rates, which have been long awaited by the market,” concludes Catarina Branco.
August 14, 2024
