Will 2023 be remembered fondly in the real estate sector? And what to expect from 2024, which will already be marked by a turning point in the Government, with legislative elections scheduled for March 10? Caution, a wait-and-see approach, political instability, and economic-financial turbulence – high inflation rates, although decreasing, and high-interest rates – are expressions used throughout the past year to characterize the state of the nation in the real estate sector. To all this is added a housing crisis, making it urgent to increase the supply of homes at “adjusted” prices. Are there still reasons to be optimistic? Idealista/news attempts to provide answers to these and other questions with the help of the main real estate consultants operating in Portugal, who advise and promote multimillion-dollar real estate deals and work closely with property owners and investors.
The commercial real estate market in 2023 was largely determined by the global financial context, characterized by rising inflation and the consequent restrictive monetary policy imposed by the European Central Bank, with successive increases in interest rates.
While, on the one hand, the first half saw a higher investment volume than the corresponding period, the second half ended up reflecting the impact of more restrictive financing conditions, with around a 40% drop in investment volume until the third quarter.
Nevertheless, it is important to emphasize that this was a trend common to all major European markets, which experienced higher declines and a widespread decompression of yields.
Considering that market fundamentals remain unchanged, there is no reason why Portugal should not continue to be competitive compared to other markets and, therefore, an attractive destination for foreign investments. This attractiveness is evidenced in the retail and tourism sectors, which reported higher investment volumes than the corresponding period, greatly driven by excellent operational performance indicators.
It is a fact that, in addition to the uncertainty of the global context, other major challenges loom for the coming year, notably governmental stability, essential for attracting foreign investment. After the dissolution of parliament, the government solution decided in March will be crucial for Portugal’s image on the international stage.
In a context where a solution of an absolute majority is not anticipated, it is crucial to establish agreements between parties to ensure security, stability, and predictability, all of which are fundamental in attracting foreign investment. On the other hand, simplifying licensing processes and an excessive normative and regulatory framework, stability in the leasing regime, or tax relief in new construction would be, among others, important changes not only to maintain foreign investment interest in the sector but also to substantially address the current housing crisis marked by a lack of supply and high construction costs.
In the current scenario, the behavior trend of the tourism market in the next year, after the rapid recovery seen in 2023, is also not yet clear. The recession scenario in major European markets is expected to impact household disposable income and, consequently, the money available for tourism and leisure.
In general, we believe that 2024 will be a challenging start, but with prospects for improvement by the end of the year, given the continuous resilience of the retail and tourism sectors and the attractiveness of prime assets in the most consolidated areas.
Read the full article published in Idealista/News on 3rd January 2024.
