Recent news highlights the robust performance of the sector, with a significant increase in take-up and some historic transactions in 2024. The numbers speak for themselves: the approximately 128,000 square meters (sq.m) leased in the first half of 2024 surpasses the total office rents recorded for the whole of 2023 (which closed with 115,174 sq.m leased).
At the same time, the average vacancy rate in Lisbon has remained low and stable in most of the most central locations, a strong indicator that reinforces Portugal’s attractiveness to international companies. Average rents and salaries in the technology sector, which are generally lower than in the main European cities, keep Portugal in the sights of large multinationals. These factors have allowed rents to remain stable (and, in some cases, to increase), reinforcing the good performance of the market, with low vacancy rates and stable yields.
But are these indicators indicative of exceptional market performance in the coming years?
Looking at the first half of 2024, we see that it was marked by three major transactions: Caixa Geral de Depósitos’ occupation of the WellBe building (28,300 sq.m), the European University’s lease of the Oriente Green Campus building (17,200 sq.m) and the lease of 17,005 m² in a building in Entrecampos by an undisclosed financial entity. It’s interesting to note that these three transactions account for 47% of the total take-up for the semester, but even taking them out of the equation, the take-up figures are still higher than those for the same period in 2023, with growth of 85% compared to the first semester of 2023.
Although the figures show positive signs, there is still a long way to go. The next few years will be marked by major challenges, and players who fail to adapt will risk being left behind. Owners and investors will have to rethink their strategies and improve the quality of their assets.
New office buildings, such as the World Trade Center, Lumnia and ALLO, as well as future projects such as Oriente Green Campus, Rato Eleven, Campo Novo or República 5, have clearly raised the level of quality of buildings on the market in Lisbon, contributing to their rejuvenation and improvement in terms of sustainability. Over the next few years, more than 200,000 m² of office buildings will be added to the market, with increasingly stringent sustainability criteria, flexible spaces, better collaborative environments, more technological infrastructures and automation, raising companies’ demands.
Owners, asset managers, architects and developers will have to adapt to this new paradigm. Even commercial activity will have the opportunity to review its strategies, introducing new concepts and technological developments such as artificial intelligence, in order to capitalize on the spread of innovations and features that these buildings are already introducing to the market.
The increase in the quality of stock will raise the standards of potential occupiers, who will be looking for office buildings capable of attracting and retaining their employees. This will increase the pressure on older buildings, forcing owners to renovate them in order to keep up with the market and not run the risk of being left with assets considered by the market to be obsolete. Among the factors to consider when improving existing buildings, I would highlight the following:
- The European Taxonomy and its applicability to office buildings;
- The increased demand for sustainability certification criteria, such as LEED and BREEAM;
- The growing need for outdoor spaces, green spaces and leisure areas and amenities such as gyms, quiet rooms, collaborative auditoriums, among others;
- Investment in urban mobility and the network of electric vehicle chargers;
- The constantly evolving technological infrastructure, in order to respond to the growing needs of companies, such as network availability or cyber security.
At the same time, building management is also evolving, seeking to be closer to tenants’ day-to-day lives through the use of increasingly intelligent management platforms. The creation of communities within buildings and communication channels for continuous feedback between owners and tenants will be essential.
One thing is certain, the next few years will be challenging for all market players. The significant increase in supply in Lisbon will push owners and investors to rethink their strategies. For some, investment in building renovation will be the solution, for others, change of use may be inevitable, becoming the answer to the insatiable residential market in the city of Lisbon.
Opinion article by Bernardo Martins, Consultant at Worx, published in Magazine Imobiliário on August 08, 2024.
