Worx Real Estate Consultants has launched the WMarket Review Mid-year 2023, a biannual publication that analyzes the recent activity of the real estate market in Portugal and presents trends and forecasts for the near future.
“In this study, it was considered relevant to look at the macroeconomic context of pressure on financial conditions, the increase in benchmark interest rates (with the expected and visible impact on capital markets), the increase in corporate financing costs, high inflation, and the reduction in real disposable household income,” says Sílvia Dragomir, Head of Research at Worx Real Estate Consultants, about this launch.
Here are the highlights of the main real estate market indicators in Portugal.
In contrast to Europe, investment in commercial real estate in Portugal exceeded 700 million.
Investment
In the first half of the year, investment in Commercial Real Estate (CRE) exceeded €700 million in Portugal, 13% more than in the same period in 2022. Extraordinarily, this is a trend that goes in the opposite direction to the European market, whose volume invested in CRE contracted by 57%.
Hospitality leads the investment volume with 39% of the investment volume, with the highlight being Dom Pedro Hotels sold to Arrow Global for €250 million, the largest transaction to date. The retail sector followed with 11 transactions, adding €220 million to the investment volume in CRE, which represents 32%. The largest transaction in this sector and the second largest of the semester was the sale of the Amália Portfolio to LCN Capital Partners for €150 million.
Prime yields in Portugal generally fell by 50 b.p. in the last half-year. Shopping centers were the exception as the increase was slightly higher, at 60 bp.
These changes reflect decreases of up to 10% in sales values per m2 over the last 6 months, a significantly lower variation compared to most other European markets.
Offices
By July 2023, 44,300 m2 of office space had been transacted in Greater Lisbon, spread over 84 operations. Despite the decrease in actual demand in these months, the flow of active demand in the market remains stable.
The upward trend in supply will continue over the next few years. There are currently 13 projects under construction that will bring around 261,000 sq.m of increased quality to the market, a significant proportion of which is already pre-let (47%).
In addition to this figure, there are 9 projects planned for the next 3 years which will add more than 47,000 sq.m of new supply, with almost no closed pre-lets.
Prime rents in the office market have seen slight increases in the last half year, continuing the upward trend in market values.
Prime CBD (zone 1), CBD (zone 2) and Emerging Zones (zone 3) showed increases of between 3% and 5% in the last half year, with market values standing at €27.0/m²/month, €22.0/m²/month and €19.0/m²/month, respectively.
Retail
The retail sector will be most impacted in 2023 by private consumption, which will grow at a rate of just 1.6%. The retail turnover index grew by 2% in the first 6 months of the year, influenced by a 3% growth in non-food products. In the latter, there was a year-on-year increase of 24% and 10% in online commerce and fashion items, respectively.
Prime rents recovered slightly in the last quarter, with the exception of shopping centers, where rents remained the same. In Lisbon’s street shopping, the prime rent recovered to €130.0/m²/month, still 7% below the figure for 2019. In Porto, the prime rent for street shopping has come close to full recovery, standing at €70.0/m²/month. The prime rent charged in shopping centers continues to fall by 5% compared to 2019, remaining at €95.0/m²/month. In retail parks, prime rent increased by 12% compared to 2019, reaching €11.75/m²/month, as a result of the strong resilience of occupiers in this format.
Industrial and logistics
Activity in the I&L sector in Portugal recorded around 294,000 m2 of take-up in the first half of the year, spread over 32 operations in the first half of 2023, reflecting a year-on-year increase of 41%. The average deal increased to 9,160 sq.m this semester, compared to 8,000 m2 in the same period of 2022. In the Lisbon Metropolitan Area, occupational activity transacted a volume of 111,000 sq.m. With a total of 20 operations accounted for, the average deal was 5,560 sq.m.
In the 2nd quarter of 2023, the upward trend in prime rents continued in locations closer to urban centers and with new projects in the Lisbon Metropolitan Area. Rents in the city of Lisbon and on the Loures-Amadora axis are at their highest, at €6.50/m²/month and €6.25/m²/month respectively. In the Alverca-Azambuja axis, the prime rent increased slightly to €4.75/m²/month. The Western Corridor has the third highest rent in the Greater Lisbon market due to its proximity to urban centers, with a prime rent of €5.50/m²/month.
The publication also looks at the tourism, residential and alternative sectors of the health, living and data centers segment, presenting the main data and indicators for these sectors.
See the full report in our Research area.
August 28, 2023