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WMarket 2023-2024 – Office Sector

Worx Real Estate Consultants is launching WMarket 2023-2024, an annual publication that analyses the different commercial real estate sectors in Portugal and forecasts trends for this year.

In 2023, Portugal accounted for nearly 1.610 billion in commercial real estate investment, signalling a 45% drop compared to the previous year.

Following the European trend, the office sector was one of the most penalised (-69%), with a total of 177 million euros invested, which represents the lowest investment in the sector since 2013.

Among the main investment operations carried out in 2022 were the Castilho 20 transaction between Deka Immobilien funds for €30-35 million, the sale of the Pier III building to BNP Paribas REIM for the same amount and the acquisition of Malhoa 13 for between 15/16 million euros.

From an occupancy perspective, the office market recorded a total volume of 112,474 sqm occupied in Lisbon in 2023, reflecting a drop of 59% compared to 2022, a historic year in terms of demand.

In fact, the average deal fell from 1,360 sqm in 2022 to 740 sqm in 2023, with only three transactions above 4,000 sqm.

The Expansion Area (zone 3) was the most sought-after, having attracted more than 26,000 sqm (23 per cent of the total area placed), followed by Parque das Nações (zone 5), which accounted for more than 24,000 sqm and 22 per cent of total demand. In this context, it should be noted that the volume of take-up in zone 5 was largely boosted by three deals at the Exeo Office Campus – Lumnia.

CBD zone proved to be the most resilient in the face of the generalised downturn in demand for office space, absorbing roughly the same area as the previous year, which is more than 18,000 sqm. Western Corridor (zone 6) attracted the largest number of transactions, accumulating more than 24,000 sqm of occupancy, including the largest transaction of the year relating to the relocation of Lusíadas to The Office, occupying the entire 5,683 sqm of the building.

From another perspective, the prime CBD (zone 1) and the historic and riverside zone (zone 4) showed the biggest drops in absorbed area, of 65% and 74% respectively.

TMT & Utilities sector remained the biggest driver of demand, accounting for 24 per cent of the area placed, followed by the Pharmaceuticals and Health sector (15 per cent), whose increase in demand was notable.

In this context, more than half of the transactions recorded relate to relocations, with the number of new companies in the Lisbon region falling by half. This dynamic was largely due to the difficulties experienced by IT companies in recruitment processes given the competitiveness of the labour market.

In 2023, the vacancy rate saw an annual increase of 0.13 p.p., standing at 9.3 per cent, with the biggest increases in the Historic Zone (zone 4) and the CBD (zone 2).

Also in 2023, the completion of five office buildings represented an increase of more than 42,000 square metres in Lisbon’s stock, which is much lower than the new supply of 130,000 square metres completed in 2022.

Among the buildings completed in the last year, only two are new constructions, K Tower and EXEO – Aura, both located in zone 5 (Parque das Nações). This new supply didn’t result in a substantial increase in the vacancy rate, since more than half of the total area was previously leased.

This year, 12 projects totalling around 150,000 sqm are expected to be completed, almost 60% of which is pre-leased. The main projects under construction include the Oriente Green Campus, the new Oeiras Town Hall headquarters and EXEO – Echo.

Considering the size of the spaces currently under negotiation, a strong dynamic in office occupancy is expected at the start of the year, which should contribute to a total annual volume of around 160,000 square metres by 2024, in line with the average of the last 10 years.

With data for the month of January, the Lisbon office market saw a more robust dynamic at the start of 2024 than in the previous year, with take-up of more than 6,700 square metres. Prime CBD (zone 1) and CBD (zone 2) together accounted for 77 per cent of the total area placed this month, which corroborates a greater appetite for prime assets in central locations and with modern facilities, to the detriment of larger spaces in the vincinity.

Published on 29th February 2024.

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