MARKETBEAT PORTUGAL,
SPRING 2023
A Cushman & Wakefield publication
01
ECONOMY
02
OFFICES
03
RETAIL
04
INDUSTRIAL & LogIsticS
05
HOSPITALITY
07
DEVELOPMENT
08
INVESTMENT
09
SUSTAINABILITY
///////////////////////////
AGENDA
06
LIVING
Economic Indicators
2022
Following a period of recovery from the pandemic crisis, from the second quarter of 2022 onwards economic activity in Portugal slowed as a result of the effects of the war in Ukraine, highlighting the increase in geopolitical uncertainty and the European energy crisis, which contributed to a generalised increase in prices and a decline in confidence amongst economic agents.
GDP
PRIVATE CONSUMPTION
EXPORTS
INFLATION
UNEMPLOYMENT RATE
+6.7%
+1.2%
+7.8%
+5.8%
+17.3%
6.0%
Given the stagnation of disposable income, the increase in consumption was partially due to the improved performance of the labour market - which, with an unemployment rate of 6.0%, is considered to have reached full employment - and the use of savings accumulated during the pandemic. In turn, the increase in exports and reduction in the unemployment rate benefitted from the strong recovery in tourism.
Against a backdrop of high inflation (7.8%), the Portuguese economy still recorded a 6.7% increase in GDP in 2022, the highest in the European Union, largely thanks to the positive performance of private consumption (+5.8%) and exports (+17.3%).
Economic Forecasts
2022 / 2024
Short-term economic forecasts point to a slowdown of activity in the Portuguese economy, which, according to Moody's, is set to grow 1.3% in 2023, recovering to 2.8% in 2024. Against the backdrop of the prevailing strong global uncertainty, this outlook is driven by the expected continuation of high energy prices, reducing spending power, more difficult access to finance and a weakening of external demand; with a gradual reversal forecast to occur from the second half of this year.
+1.3% / +2.8%
+0.8% / +6.6%
+5.2% / +2.4%
+0.4% / +1.8%
+3.8% / +1.2%
+6.6% / +6.2%
A steady reduction in inflation across Europe, will allow the European Central Bank's medium-term objective of 2% to be reached by 2025, which has justified the current monetary policy normalisation process and repeated interest rate hikes.
Thus, in 2023, Moody’s foresees moderate private consumption, a deferment of corporate investment and a slowdown in exports, with only the latter not forecast to recover in 2024.
Source: Moody's (February 2023)
GREATER LISBON
Greater
Lisbon
TAKE-UP
NEW COMPLETIONS
AVERAGE DEAL SIZE
UNDER CONSTRUCTION
VACANCY RATE
272,000 sq.m (+68%)
1,360 sq.m (+15%)
6.9% (+1.1 p.p.)
115,400 sq.m
274,700 sq.m
2
Source: Cushman & Wakefield; LPI
Take-up by semester and average deal size
In 2022, the Greater Lisbon office market recovered significantly, partly due to several large-scale occupations, with an all-time high take-up of 272,000 sq.m. Amongst the largest deals are the future owner-occupations by Fidelidade (28,000 sq.m on Av. Álvaro Pais); BNP Paribas’s purchase of the Echo and Aura buildings (totalling 38,250 sq.m) of the Exeo Office Campus; and EDP's headquarter extension on Av. 24 de Julho (11,400 sq.m). In addition, the recently concluded ALLO project has secured almost total occupancy of its two blocks with three pre-lets, including Galp with 17,750 sq.m. Parque das Nações (zone 5) and the new office zones (zone 3) commanded close to half of the total leased area; and, by sector, Financial Services accounted for one-third of the activity.
Main transactions
Despite the increase in activity, the vacancy rate rose by 1.1 percentage points (p.p.), to 6.9%, and it is expected that the availability of lower-quality buildings will become structural vacancy, given occupiers' continued preference for high-quality space. This also explains the high volume of new completions, totalling 115,400 sq.m; as well as the future supply over the next 3 years, foreseen at 424,120 sq.m, with 274,700 sq.m currently under construction, of which half is already pre-leased.
Main new completions
Vacancy rate by zone
Source: Cushman & Wakefield
Main projects under construction
Average and prime rents
The increased dynamism of the occupational market, against a shortage of quality supply, was reflected in the evolution of rental values, with a general rise in headline rents.
GREATER PORTO
GRANDE PORTO
Porto
58,500 sq.m (+3%)
770 sq.m (-14%)
8.3% (-0.6 p.p.)
47,400 sq.m
112,200 sq.m
In Greater Porto, the office sector was relatively stable in 2022, with a take-up of 58,500 sq.m, representing a year-on-year increase of 3%. Among the largest deals were several pre-lettings, namely in Porto Business Plaza - to SaltPay (4,740 sq.m) and by Natixis (3,200 sq.m) - as well as the lease of 4,500 sq.m by coworking Spaces (IWG) in Joana D'Arc. The Central Business District (CBD) Baixa (Zone 2) and Matosinhos (Zone 6) were the most sought-after zones, attracting close to two-thirds of the take-up; with the TMT's & Utilities sectors accounting for nearly half of the leased area.
Source: Cushman & Wakefield; PPI
The vacancy rate adjusted downwards, by 0.6 p.p., to 8.3%; with a total of 47,400 sq.m of completions, of which one-third remains to be leased. Greater Porto is also witnessing increased investment in quality supply, with the development of 135,400 sq.m by 2025, of which 112,200 sq.m are under construction (37% already pre-leased).
Like in the capital, considerable interest in Greater Porto and the quality of new buildings led to an increase in headline rents in most areas.
Trends
HYBRID WORKING MODEL
RESHAPING OFFICES AS WORKPLACE COMMUNITIES
ENVIRONMENT, SOCIAL AND GOVERNANCE (ESG) CRITERIA
RENT STABILISATION
INCREASED AVAILABILITY
Workplace strategy is a major concern for companies. The hybrid working model has an impact on the way organisations design their office space, moving from a designated workspace for each employee to rotating workspaces (less in number) and more collaborative zones. Accessibility and mobility have also taken on a more important role.
Office spaces are no longer viewed as an area where people exclusively work, but have become spaces to meet, collaborate and share. Larger projects extend their range of services and create both work and leisure experiences.
High impact on new buildings and main occupier demands, especially sustainability issues. Various existing real estate certifications for construction and occupancy are increasingly becoming a value driver.
Rent in all areas has stabilised, following a steady period of growth.
There is a trend towards a slight increase in the vacancy rate, as a result of the start of construction and completion of some large properties. Some area released for sub-letting by some of the largest occupiers in the technology sector, which is going through a phase of reducing occupancy, after three years of marked expansion.
RETAIL SALES INDEX
127 (+5.8%)
In 2022, the retail sector consolidated its recovery from the pandemic crisis, with sales volume recording year-on-year growth of 5.8%, nominally reflecting the significant impact of price inflation (13.6%). By contrast, and despite a slowdown in the pace of growth, e-commerce maintained its positive momentum, with the consumers making online purchases up by 2.3 p.p., to 43%. Clothing and home-delivered meals were the prevalent products ordered online.
Total
117 (-1.7%)
Food Retail
139 (+13.7%)
Non-food Retail
43% (+2.3 p.p.)
Consumers who have purchased / ordered online
E-COMMERCE
RETAIL SCHEMES
44,700 sq.m
New Completions
63,500 sq.m
Pipeline
1
3
4
Calendar and seasonal effects adjusted deflated; Index base 2015 = 100
Source: INE
In the quarter preceding the survey
Until 2025
Mouse hover to view the notes
In retail development, a total of 44,700 sq.m of GLA was opened, the vast majority in the retail park format, notably the Sudoeste Retail Park (Silves) and the commercial zone of Alagoa Office & Retail Centre (Oeiras). A further 63,500 sq.m of GLA is expected to be completed by 2025, more than half of which are also retail parks.
Dados deflacionados e ajustados de efeitos de calendário e da sazonalidade; Índice com base 2015 = 100
Fonte: INE
No trimestre anterior ao inquérito
Até 2024
Supply of Retail Schemes
Source: Cushman & Wakefield * Forecast
Retail
Schemes
New openings
In 2022, in accordance with Cushman & Wakefield’s proprietary transactions database, retail demand remained stable, with 560 new openings, in line with the previous year, and an estimated total area of 265,000 sq.m. The predominance of high street retail continued, representing 64% of the deals, with retail parks and stand-alone units gathering growing interest, together representing 16% of the deals. The Food and Beverage (F&B) sector remained dominant, with 45% of the new openings; while the “others” sector also increased, influenced by the 90% growth in furniture, decoration and DIY units. Non-random sample of retail demand aggregated by Cushman & Wakefield based on public sources and targeted fieldwork.
560 (=)
64%
High Street Retail
45%
F&B
5
Non-random sample of retail demand aggregated by Cushman & Wakefield based on public sources and targeted fieldwork
Demand
RETALHO
Procura
The city of Lisbon boasted 41% of new openings in Portugal, the vast majority of which in the high street, particularly in the Chiado area, which benefitted from almost 30 openings. F&B represented more than half of the leases, while the food sector recorded the most active retailers, namely My Auchan with the opening of 5 supermarkets and Continente Bom Dia with 4 new units.
230 (+16)
89%
57%
With 100 new shop openings, Porto demonstrated the most significant year-on-year growth (more than 40 units) in the country. High street retail continues to be the most sought-after, with the Baixa area attracting 19% of the new units. This area has seen some relevant refurbishment works, such as the recently renovated Mercado do Bolhão and the future Bonjardim project. F&B was responsible for more than half of the new openings, followed by the food sector, where the opening of the first two neighbourhood grocery stores by the local brand EasyDay is worth noting.
100 (+71)
90%
56%
Prime rents
Increased demand for some of the main high street areas in Lisbon and Porto, coupled with a shortage of supply, contributed to an increase in prime rents in the downtown areas of both cities, as well as on Lisbon's Av. da Liberdade. In shopping centres, prime rents remained stable, rising slightly in retail parks, as a result of the growing interest in this format.
RETAIL: TRANSFORMING SHOPPING INTO AN IMMERSIVE EXPERIENCE
EMBRACING SOCIAL MEDIA AND EXPLORING THE METAVERSE
DISCOUNTERS ARE IN FASHION
Collaboration with F&B, leisure, culture and new technologies. New types of concept stores that favour personalised layouts and experiences.
Brands that adhere to ESG criteria will have a competitive advantage. New concepts appearing in the market, which promote recyclable products.
Use of virtual and augmented reality will capitalise on sales. Convergence and perfect symbiosis between physical and digital retail (hybrid models).
Very aggressive expansion plans by several newcomers. A flexible pricing policy, resistant to any type of economic situation.
SUSTAINABLE SHOPS AND THE CIRCULAR ECONOMY
Main
Indicators
In 2022, trading activity in Portugal maintained an upward trend, with the export and import of goods recording year-on-year growth of around 20%, against a backdrop of a slowdown in price increases in the final months of the year.
IMPORTS
SALE / LEASE
€91.0 billion
7,480 sq.m
553,100 sq.m
€71.8 billion
85%
(+19.6%)
(+23.2%)
(-22%)
(+7%)
Source: INE; Cushman & Wakefield; IPI
6
Excluding fuel and lubricants
Marked by significant increases during the pandemic, the occupational activity of the industrial & logistics sector slowed in 2022, with 553,100 sq.m transacted, a year-on-year drop of 22%. In contrast, the average size, influenced by several large-scale deals, increased to 7,480 sq.m. Among these, prominent examples are the start of construction of the first phase of Mercadona's 50,600 sq.m Almeirim Logistics Block and NewCold's purchase of the 40,000 sq.m former Elos property in Palmela; as well as the considerable activity of the national transport and logistics companies Olicargo and Garland, with two deals each.
Source: Cushman & Wakefield; IPI
Increased interest in speculative development, as opposed to build-to-suit projects, was consolidated last year, representing 85% of the take-up; with the regions of Lisbon and Porto remaining the most popular, with 51% and 18% of total take-up, respectively.
Heightened demand for quality projects corresponding to more demanding occupation criteria, continues to encourage development of new projects. This trend is evident among the main completed projects, all of which have secured occupation, with the first phase of Azambuja Green Logistics Park standing out, pre-let to Sonae MC; while the other developments are for owner-occupation.
Among the main future supply currently under construction is the development of the second phase of Aquila Capital's project in Azambuja; and the entry into the market of Montepino, which recently reached an agreement with Leroy Merlin to build what will be the largest logistics platform in the country, in Castanheira do Ribatejo.
Excluindo combustíveis e lubrificantes
URBAN LOGISTICS
(LAST MILE)
€6-7 / sq.m / month
Given the continued activity and development of quality spaces, rents for logistics spaces have risen in general, while remaining stable in the urban logistics segment.
€5-6 / sq.m / month
E-commerce drives take-up of logistics properties
Nearshoring trend and the demand for warehouses
Portugal well-positioned for growth in the data centre sector
Consumers are increasingly opting for the convenience of online shopping, with the e-commerce market continuing to grow. This has led to a higher demand for logistics properties, which in turn increases the supply imbalance and rents.
Urban (or proximity) logistics continues to drive high demand, which is seeking to adapt to an ever more demanding customer who expects to receive the product or service in the shortest time possible. Large companies must redesign their logistics operations in order to become more efficient. Older warehouses are being restructured and refurbished, but the challenge here is the delay of the licensing processes.
Globalisation and the effect of economies of scale led to the industry and stockpiling becoming mainly centred in Asia. The recent supply chain interruptions and stock shortages that occurred worldwide, including in Portugal, set off a trend for nearshoring, that is, installing new industries in the country to meet local and international needs. Demand for properties to store products has also risen.
"Data logistics" is an expanding market, and several deals have already taken place in Portugal. This trend is due to the rapid advance of technology, in response to the increased need for data storage, data protection, streaming platforms and the widespread use of cloud computing models. Portugal has definitely caught the attention of the biggest data centre operators, as it is perceived as a safe country, with low latency (i.e., high internet speed) and sufficient availability of energy.
Increased interest in urban logistics
Tourism
Tourism indicators followed an upward trend throughout 2022 reflecting a recovery in hotel activity, with significant increases compared to the previous year (which admittedly in part still suffered from pandemic-related travel restrictions). The number of guests and overnight stays recorded year-on-year increases of around 90%, particularly influenced by foreign visitors, reaching levels similar to those of 2019. On par with demand, revenue from hotel operations saw a sharp rise, particularly in total revenues, which more than doubled compared to 2021 and exceeded the 2019 figures by 15%. The RevPAR (Revenue per Available Room) also reached values in excess of the last pre-pandemic year, namely €61.8; with the occupancy rate (per room) standing at 61%, 6 p.p. below 2019.
TOURISTS
OVERNIGHT STAYS
REVPAR
TOTAL REVENUES
OCCUPANCY RATE
21.2 million
57.2 million
€4,371 million
€61.8
61.0%
Source: INE; Turismo de Portugal
(+85% vs 2021; -2% vs 2019)
(+89% vs 2021; -1% vs 2019)
(+118% vs 2021; +15% vs 2019)
(+75% vs 2021; +6% vs 2019)
(+26 p.p. vs 2021; -6 p.p. vs 2019)
Pipeline by region
A notable year-on-year increase in overnight stays was seen across the country, with the Lisbon area proving to be the most popular, where the previous year's figures more than doubled, remaining slightly below the 2019 levels. Compared to the latter, some regions even recorded higher numbers, namely the Northern region and the islands. RevPAR by region followed a similar trend to overnight stays, with the highest increase recorded in the Lisbon metropolitan area (+142%); albeit, still the only one, together with the Northern region, to register values below 2019.
Overnight stays and RevPar by Region
7
The Short-Term Rental segment attracted 9.8 million overnight stays and 4.1 million guests, in line with the hospitality sector a growth of about 90%, but still below 2019 (4% and 10%, respectively). Total revenue also doubled compared to the previous year and was 14% above 2019, standing at €437 million; and compared to this latter year, RevPAR recovered 17%, to €36.7.
New Supply
Investment in the sector remained buoyant, with the opening of more than 50 new hotel projects, totalling 2,910 keys, of which more than half were in the 4-star category. Amongst the biggest openings are the 5-star units - W Algarve (Albufeira), Pestana Douro Riverside (Gondomar) and Hyatt Regency Lisboa - and the Martinhal Residences development of serviced apartments in Parque das Nações (Lisbon).
Main openings
Até 2025
Supply will continue to grow in the coming years, with close to 130 projects expected to open by 2025, totalling 11,300 keys mostly 4- and 5-star hotels (30% and 33%, respectively) in the metropolitan areas of Lisbon and Porto.
+51
Hotels opened in 2022
+2,910
New Keys
Lisbon continued its recovery in relation to tourists arriving by air or sea, particularly at Humberto Delgado Airport and the Port of Lisbon, respectively, although total numbers were still below those of 2019. However, worth noting is the record-breaking 103 cruise stopovers with a turnaround (those with this port as the point of origin or as a destination), involving 88 thousand passengers; this is the segment that produces most revenues to a destination, as it is estimated that each passenger coming ashore in Lisbon spends an average of €367 in the city. During 2022, the capital recorded 13.3 million overnight stays in tourist accommodation (including hotels and short-term rentals), 5% below 2019, despite the marked year-on-year growth. The occupancy rate rose to 68.6% and RevPAR to €91.2.
28.3 million
13.3 million
68.8%
€91.2
There were 14 new openings, with a total of 830 keys, largely 4- and 5-star units. By 2025, another 23 hotels are planned, totalling 2,180 keys, with 4- and 5- star categories still dominating (28% and 41%, respectively). Noteworthy examples are the Radisson RED Lisbon Olaias (4 stars, 290 keys) and the Meliá Lisboa (5 stars, 240 keys).
AIRPORTS
CRUISE TERMINALS
OCCUPANCY RATES
TOURIST ARRIVALS
(+159% vs 2021; -5% vs 2019)
(+32 p.p. vs 2021)
(+162% vs 2021)
(133% vs 2021; -9% vs 2019)
492 thousand
(325% vs 2021; -14% vs 2019)
Source: INE; APL
In touristic establishments
8
9
In hotel establishments
10
11
Source: Study of the Economic Impact of Cruise Activity in Lisbon, promoted by the Administration of the Port of Lisbon in partnership with Lisbon Cruise Port and carried out by Netsonda and Nova SBE.
Porto also benefitted from a significant recovery in relation to tourists arriving by air or sea at Francisco Sá Carneiro Airport and Leixões Port, respectively. The latter even exceeding the 2019 figures by 22%, reaching the second-highest ever high, as well as a record number of stopovers (112). The number of overnight stays in tourist accommodation in Porto more than doubled, reaching 4.8 million, above the 2019 values, with RevPAR showing an average of €69.8, and an occupancy rate of 61.7%. Throughout 2022, 10 new hotels opened in the city, mostly in the 4-star category, adding 620 new keys to the supply.
12.6 million
4.8 million
61.7%
€69.8
The estimated pipeline, for the next 3 years, totals 6 new hotels with 620 rooms, 59% in the 4-star category; and major new openings expected include The Renaissance Park Hotel (4 stars, 170 rooms) and the Oporto Story Hotel (5 stars, 120 rooms).
(+156% vs 2021; +4% vs 2019)
(+28 p.p. vs 2021)
(+137% vs 2021)
(+116% vs 2021; -4% vs 2019)
109 thousand
(+1.115% vs 2021; +22% vs 2019)
Source: INE; APDL
12
13
14
Fonte: Estudo de Impacto Económico da Atividade de Cruzeiros em Lisboa, promovido pela Administração do Porto de Lisboa em parceria com a Lisbon Cruise Port e realizado pela Netsonda e Nova SBE
Polarised markets
Monetising sustainability
From observation to action
Blurring lines between traditional hospitality and living
Leisure and lifestyle at an advantage
Despite the rising cost of living threatening the spending power of tourists, their desire to travel remains intact, with consumer trends and impacts shifting depending on various factors. Luxury and low-cost segments will be less exposed to economic fluctuations, especially in the leisure segments and with exposure to markets with favourable exchange rates to the euro.
Although ESG criteria are a priority for the main real estate players, the hospitality class has demonstrated little proactivity in this field. However, prioritising and integrating ESG principles into both new and existing projects is now gaining considerable momentum, under pressure from investors, financiers, or at the initiative of property developers.
The excellent recovery of tourism has exacerbated the disparity in price expectations between buyers and sellers; with investors remaining active and prepared to invest. Both parties’ reasoning is shaped by different references: owners do not feel under pressure to generate liquidity, while investors are cautious about the cost of capital. However, the second half of the year is likely to see increased investment activity, with asset quality determining which party will be more willing to compromise on initial expectations.
The resilience shown during the pandemic and the rapid evolution of mobile lifestyles led investors to look for unconventional forms of hospitality, with hotel concepts increasingly integrating long-term stays, co-living, student accommodation and housing. Developers and brands will be more aware of consumer trends and more agile in responding with new real estate products.
Investors will continue to invest in the strong recovery and prospects for continued growth in the leisure and lifestyle segment. Several funds were capitalised during 2022 with a view to source investment in leisure products during 2023 and beyond. Demand for investment opportunities will shift from resorts to urban lifestyle projects in popular and safe destinations, in key southern European geographies, including Portugal.
Sale of
apartments
NR. UNITS SOLD
AVERAGE ABSORPTION TIME
AVERAGE PRICE
AVERAGE DISCOUNT AND ADJUSTMENT RATE
NEW
2,200
(+15%)
TOTAL
11,060
(+1%)
6,260/sq.m
(-1%)
4,220 sq.m
-2%
-7%
11 months
6 months
LISBON
2,470
(+3%)
6,030
(-7%)
3,910/sq.m
3,120 sq.m
(+9%)
-4%
-6%
12 months
8 months
PORTO
15
New and used
Source: SIR / Confidencial Imobiliário (SIR Ci)
Residential Projects Licensing
According to data from the Residential Information System (SIR) / Confidencial Imobiliário, the rise in inflation and interest rates, and the consequent deterioration of families' spending power, will have contributed, in 2022, to a drop in the sales price of apartments in Lisbon and Porto, despite the sharp increase in the number of new properties sold, while future supply fell in both cities.
Source: Pipeline Imobiliário Ci
Amostra não aleatória da procura de retalho agregada pela Cushman & Wakefield baseada em fontes públicas e trabalho de campo direcionado
According to the Bank of Portugal, mortgages were granted to the total amount of €16.2 billion, the highest in the last 15 years.
16
Percentage values correspond to the variation between 2022 compared to 2021
Sales price of apartments
In 2022, the average sales price (new and used), in Lisbon, stabilised at €4,220/sq.m, and at €6,260/sq.m for new apartments. The Traditional Zone and Historical Centre commanded the highest sales prices, standing at €5,260/sq.m and €5,220/sq.m, respectively. The average discount and adjustment rate remained at 7%; with the average take-up time decreasing slightly to 6 months. The difference between the final sales price and the initial price offered for the property. In terms of future supply, Lisbon recorded a sizable decline in the licensing of residential projects, namely 15% of both licensed and submitted projects.
Source: Cushman & Wakefield; SIR Ci
Price of apartments
17
The difference between the final sales price and the initial price offered for the property
18
In Porto, the sales prices of apartments increased by 9%, to €3,120/sq.m, and 3% for new apartments, to €3,910/sq.m. Foz and the Historic Centre were the most sought-after, with prices reaching €3,830/sq.m in both. The average discount and adjustment rate adjusted downwards to 6%; and like the capital, the average take-up time decreased by 1 month to 8 months. Future supply seems to stagnate in the volume of projects licensed and a 21% drop in projects submitted for licensing.
19
Lease of
NR. LEASED UNITS
AVERAGE MONTHLY CONTRACTED RENT
170
(-18%)
3,050
(-20%)
€21.4/sq.m
(+30%)
€15.8/sq.m
(+22%)
-3%
3 months
70
(-38%)
450
(-27%)
€15.1/sq.m
(+16%)
€12.5/sqm
(+20%)
-1%
Novos e usados
Source: SIR Ci
Given the shortage of supply in Lisbon and Porto and with more stringent finance terms for mortgages, the appeal of the private rented sector (PRS) continues to grow, as well as the intention of developers to develop new built-to-rent (BTR) projects. Even so, there is still an enormous scarcity of supply, which worsened in 2022, with a decrease in the supply of housing for rent above 40% in both cities, potentially due to the revival in tourism (and the conversion of residential units to short-stay rentals), and the consequent reduction in the number of apartments leased, as well as an increase in average rents.
Rental
Em estabelecimentos de alojamento turístico
Em estabelecimentos hoteleiros
Rents in Lisbon reached €15.8/sq.m, for apartments (+22%), and €21.4/sq.m for new properties (+30%); with the Historic Centre continuing to take the lead, with a year-on-year growth of 31%. In Porto, the average rental price increased by 20%, standing at €12.5/sq.m/month, with new apartments reaching €15.1/sq.m/month (+16%). Like Lisbon, the same area remained popular, with Foz commanding the highest prices. The discount and adjustment rates also reflected the mismatch between demand and supply, adjusting between 3 to 6 p.p.; with the take-up time mostly falling by 1 month.
Rental Market
Market
Rental price of apartments
20
Like in recent years, and as a result of the continuous imbalance between demand and supply, student accommodation and CoLiving benefitted from significant development activity in 2022, with 2,170 new beds, spread over 7 units, all privately run. The LIV Student Campus Street in Asprela, with 775 beds, is now the largest accommodation in the country. The ratio of number of beds per student has slightly increased to 13%, as did the predominance of private operators, who now represent more than a third of the supply.
24,700
13%
36%
Student Accomodation
/ CoLiving
TOTAL SUPPLY (nr. beds)
PrivaTE OperaTors
PROVISION RATE
(+10%)
(+1 p.p.)
21
Ratio between number of beds and displaced national and international students
22
Next 3 years
Continuous increasing demand, particularly for purpose-built accommodation, continues to attract the private sector and encourage public investment, with the supply forecast for the next 3 years standing at 8,800 beds. Noteworthy future private supply includes the Coletivo de Azúrem, a project in Guimarães, with 630 beds, the expansion of Xior, with two U.Hub projects, and the entry into the market of The Social Hub (formerly The Student Hotel), with projects in Carcavelos (Lisbon) and in Bonjardim (Porto).
Main private pipeline
In the senior housing sector, the number of available beds is rising, currently standing at 103,400. Even so, the ageing of the population contributed to the fact that the equipment ratio has not improved, remaining at 14%. Under these circumstances, complemented by a high occupancy rate and scarcity of quality supply, there is increased activity by the private sector, particularly with the entry in the market, in recent years, of specialist international companies, such as the ORPEA group, which in 2022 opened a 100 beds unit in Braga. Looking ahead, for the next three years, an increase of 800 beds is projected from among the main private operators, with most choosing to develop projects of more than 100 beds, like DomusVi that will open 3 residences (in Leiria, Oeiras and Estrela).
103,400
92%
26%
Senior
Living
(+2 p.p.)
Source: GEP; INE; ACSS
23
Ratio between the number of beds and population aged 80 and over; 2021 population
14%
(=)
EQUIPMENT RATE
Housing
Source: Office for Strategy and Planning – Social Charter (excludes Madeira and Azores)
Supply
Main Private Operators Pipeline
Main Private Operators Openings
24
The bottleneck in the residential market is set to persist
Student accommodation and the new concepts of co-living and micro-living are here to stay
A shortage of senior housing options
The severe housing shortage is set to worsen. Insufficient measures to promote new product for the mid-end housing segment will contribute to the market remaining unbalanced, fuelling price increases. At the same time, the rise in interest rates and more stringent financing terms will drive the supply of new developments towards the higher-end housing segment.
The lack of confidence of developers, investors and landlords in the existing legal framework and fiscal policies that govern leasing in Portugal has been aggravated by the recent measures announced by the Government. Thus, it is expected that rents will continue to increase, given growing demand and lack of supply. The excessive taxes and the inadequate building regulations will continue to contribute to the absence of a specific built-to-rent product for the PRS, inevitably pushing rental prices upwards.
Despite the large number of new projects in the last five years, demand from students, expatriates working in Portugal, young professionals and young couples continues to increase, and remains higher than supply, particularly in Lisbon and Porto. More specifically in the student segment, the ratio of beds per displaced student is still below the main European cities, but this is likely to rise given the number of projects announced for the next 3 years. Portugal is becoming more and more popular with foreign students, skilled foreign workers and digital nomads. Given the huge constraints in the housing market, sizable growth in this alternative accommodation segment is foreseeable.
Portugal is one of the countries with the largest proportion of elderly population in Europe, and as a result it needs more private assisted living homes, offering quality services for the elderly. Supply has increased, but still falls a long way short of what is needed. The growth of this segment may be threatened, on the one hand, given the difficulty of most Portuguese families to afford high monthly payments. On the other hand, hiring specialised staff, especially in locations outside large urban centres, is challenging.
Rental market will remain sluggish
Development &
Purchase of buildings for refurbishment or land for development
Main urban development and regeneration deals
25
Activity in the urban development and regeneration sector picked up in 2022 growing by 48%, compared with 2021, with a total transaction volume of €786 million, spread over 55 deals. Amongst these, the development sites included in the Crow project (among other, Vale do Lobo), sold at the end of last year by ECS Capital to DK, for an estimated price of €200-250 million; and the purchase by AXA IM - Real Assets of Colombo Tower 3, for €40-45 million, stand out.
26
Information based on internal and public sources
PROMOÇÃO
Aquisições de edifícios para reabilitação ou terrenos para promoção
Real estate projects under licensing
Regarding future supply, during the last year 7.2 million sq.m were submitted for licensing in mainland Portugal, spread over more than 21,000 projects, reflecting increases of 11% and 21%, respectively, when compared with the same period of the previous year. In terms of area, although most of the projects are for residential use (73%) and new construction (78%), the office and tourism sectors benefitted equally from development and refurbishment projects, with each category accounting for around 50%.
Baseada em fontes internas e públicas
Real estate projects licensing
Licensing of construction projects in Lisbon followed an asymmetric pattern, with a decrease related to projects submitted and an increase in those already licensed. Regarding the former, there was still an increase (+13%) in the number of projects submitted, to close to 310. Contrary to country-wide data, there was again a balance in terms of the type of construction, with works in existing buildings marginally dominant.
337,200 sq.m
(-25%)
997,300 sq.m
(+91%)
LICENSED
Submitted for licensing
Licensed real estate projects
Próximos 3 anos
The area of licensed projects doubled, with the retail sector taking the lead, with 449 thousand sq.m, swayed by the permitting for the refurbishment and expansion of Centro Colombo. Construction costs continued to escalate, with average costs in Lisbon ranging from €1,450/sq.m to over €1,850/sq.m, in new construction, and from €1,700/sq.m to over €2,000/sq.m in refurbishment.
Construction costs by segment
Porto also showed an unlikely trend concerning the area of construction submitted for licencing and the licensed area. The former decreased by 28%, with the number of projects decreasing by 10%, to around 275. In Porto, new construction prevails, representing 72% of the total area.
214,500 sq.m
(-28%)
353,400 sq.m
(+6%)
LICENseD
Regarding new licensed area, the residential sector is the most popular, with a balance between new development and refurbishment. Additionally, in Porto, construction costs continued their upward trend, ranging from €1,400/sq.m to over €1,800/sq.m in new construction and from €1,500/sq.m to over €1,900/sq.m in refurbishment projects.
Residential development will continue to be a priority
Pressure on construction costs may be easing
The significant imbalance between demand and supply, especially in the mid-end segment, will continue to drive developers and investors to adopt innovative solutions to develop more homes for the middle class. The recent measures announced by the government to create more residential accommodation, do not include tax benefits for new construction nor the optimisation of licensing time for allotments, so several larger-scale residential projects are likely to continue to be delayed. Portugal is currently a very popular destination, so investment in residential projects for the high-end and luxury segments, fuelled by growing demand from international buyers, is likely to continue.
The need to develop more practical, modern and, above all, environmentally and energy-efficient offices will become increasingly evident, freeing up more buildings for conversion into housing or tourism in central locations, fostering a new cycle of urban regeneration in the cities of Lisbon and Porto.
A slight slowdown in the rising costs of construction materials and labour costs can already be observed, which may continue provided there is no global catastrophe, favouring the development of projects targeted at the mid-end housing segment.
The emergence of a new generation of offices
Commercial Real Estate
Investment
Investment activity in commercial, income-producing real estate remained very active in 2022, particularly in the second half of the year, reaching a second record-high, with a total investment volume of €2,982 million, 38% above the previous year. With a record-breaking 94 transactions, the average deal size also increased to €32 million. Increased foreign capital pushed this trend upwards, corresponding to 73% of the total deal volume, with domestic capital stabilising at €813 million.
TOTAL VOLUME
Foreign Investment
HoSPITALITY
€2,976 million
(+38%)
73%
30%
Mouse hover to see the notes
27
Institutional investment in completed and income-producing real estate properties
Investment by semester
28
In case of a range in the “Value (M€)” column, the calculation of this indicator is based on the range’s average value
Investment by sector
29
Reflecting the ongoing focus of investors on the most dynamic occupational sectors, hospitality led demand, attracting 30% of total investment (€893 million). Contributing to this was the largest transaction ever in this sector - DK's purchase of the Crow portfolio from ECS Capital for €600-650 million (for the commercial real estate component alone, with around 90% for hotel use). The office market represented 26% of the total invested (€774 million), the main deals being Sonae Sierra and Bankinter’s purchase of the Atrium Saldanha building, from the Fibeira Group, for €205 million, Castel Group’s purchase of a portfolio of three office buildings in Lisbon, for between €110-120 million from Explorer Investments and the purchase by Merlin Properties of the former Novo Banco headquarters, on Avenida da Liberdade, for €112 million. Consolidating the increased interest over the last few years and finally providing supply of a large scale, the industrial and logistics market attracted 21% of the value invested (€618 million), including Blackstone's purchases of the Connect portfolio from Novo Banco (€208 million) and of a portfolio of 15 logistics properties from M7 Real Estate (€125 million).
Main investment deals
Commercial real estate component
Other sectors caught the attention of institutional investors, representing 13% of the total volume invested; essentially influenced by Round Hill Capital's purchase of Smart Studios, an operating platform that includes a portfolio of student accommodation and CoLiving, for €200 million. By contrast, the retail sector only saw 11% of the volume invested, with the food segment dominating, including Union Investment’s purchase of the Continente hypermarket in Centro Colombo.
30
32
33
Nr. of keys of the transacted hotels (circa 85% of the commercial real estate component, as it excludes the golf courses)
Unit value by keys (€/keys)
Unit value by keys (€/beds)
31
After a period of stability during the first half of 2022, the current economic environment has caused year-on-year increases in prime yields of between 25 and 50 basis points, in the main sectors of the commercial real estate market. In the case of industrial & logistics, a yield expansion was not formally considered because the 2021 value reflected deals carried out and not necessarily the yields that would have been paid for specific properties.
Investimento institucional em produto imobiliário acabado e de rendimento
Prime
Yields
OUTLOOK Against a backdrop of rising interest rates and stricter access to credit, a slowdown in investment activity can be expected in 2023. Even so, and with around €2,700 million in deals currently in various stages of negotiation, we estimate that this year will see a transactional volume slightly below the average of the last 5 years. These estimates include €1,300 million in deals currently pending (but which may be concluded by the end of the year), as well as the usual off-market transactions. It should be noted, however, that the robustness of this pipeline is not necessarily the same as in previous years, given that price expectations between buyers and sellers are not aligned. In the outlook for the current year, the office and hotel sectors will maintain their lead, each adding a third of the forecast volume; followed by a recovery in retail, representing 21% of demand, influenced by the purchase of food retail formats.
THE "PRICE DISCOVERY" PHASE Still has no end in sight
The "wait and see" approach of the large international players persists, but...
Stricter access to credit and the refinancing of some assets may lead to transactions, but...
Continuation of interest rate increases to control inflation. The differential between yields on income-producing real estate and the so-called "risk-free assets" is very low, placing upward pressure on yields.
Office, retail, industrial & logistics and hospitality sectors: good occupier performance supports rent increases for the best assets. Rent indexation (when not limited by law) to inflation helps support valuations. New or recently refurbished assets, with an excellent "ESG performance", are more resilient.
Open-ended funds, pension funds and family offices (smaller deals, without recourse to bank debt) are active. Portugal continues to be seen as a market with a very appealing risk/return ratio. Price adjustment will be faster than in the last crisis.
Owners are reasonably capitalised; no financial distress. Banks have managed their risk portfolios more effectively and can selectively support them.
CAPITAL VALUES UNDER PRESSURE, but are partly supported by occupational markets
Commercial real estate certified buildings
The Portuguese real estate market continues to see growing interest to incorporate sustainability concept, as well as ESG criteria, in decision-making processes. In light of the increased regulation at European level, with the implementation of relevant policies and strategies, obtaining certificates such as Building Research Establishment Environmental Assessment Method (BREEAM), Leadership in Energy and Environmental Design (LEED) and WELL certification, in addition to the application of taxonomy to properties to classify their sustainability, is rapidly taking precedence.
Source: BREEAM and LEED
Portugal currently has several buildings in the commercial real estate market in different phases of certification (from design to operation). There has been a marked rise, over the last three years, of buildings awarded sustainable building certificates, for new construction / refurbishment and buildings in use.
34
New certification or renewal; only includes the projects listed by the respective entities (some projects are anonymous and therefore not published)
BREEAM has taken the lead, with close to 80 certified buildings, 90% of which are related to in use and more than half are in the retail sector. More than 30 buildings have LEED certification, and this is equally distributed between new construction / refurbishment and in use, mainly in the office sector. In terms of future certification, data of which is only available for LEED, currently almost 50 buildings are registered.
The WELL certification is focused on the use of the building and the well-being of its users. Although the implementation of this rating begins in the construction phase, it is only obtained in the operation phase, and there are yet no buildings with this certification. Even so, with nearly 40 projects registered, all in the office sector, it is expected that this situation will change shortly.
35
Response to climate change
Value chain integration
Reporting of non-financial indicators and classification of investments regarding sustainability
Reduction of the carbon footprint as a climate change mitigation measure, in order to comply with the goal to global warming to 1.5ºC. This reduction may involve the choice of construction materials to reduce embodied carbon locked in new buildings, or by measures to reduce energy consumption in the operation of existing buildings. Energy audits, Life Cycle Analysis or tools such as CREEM, which determine the carbon obsolescence of a building, are increasingly used and necessary, especially for existing real estate.
Workspace trends in 2023 are dramatically different from the pre-COVID-19 period. In this ever-changing environment, the valorisation of human capital continues to be a priority, and a determining differentiation factor. Consequently, there is a clear trend towards offices obtaining sustainability certification (LEED or BREEAM) and promoting the health and well-being of employees (WELL). The market clearly prefers to buy or rent properties with these certifications, and this requirement has become an integral part of the ESG policies of large companies. The residential market, especially the luxury segment, is also starting to adhere to sustainability certifications, with a focus on BREEAM.
The value chain is taking on considerable importance throughout companies’ activities, as these impacts need to be integrated into the reporting of non-financial indicators. Companies are now no longer analysing their own activity, but are beginning to consider the wider impact, for instance through their suppliers.
With the publication of the recent EU regulation on the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR), there is a growing focus on the classification of investments, in terms of sustainability, through the Taxonomy criteria. However, the market is still trying to understand the necessary changes and next steps, and how companies may incorporate ESG principles into their activity.
Valuing human capital
For further information or additional copies of this or other reports, please contact: MARKETING & COMUNICAÇÃO Miguel Sena miguel.sena@cushwake.com Tel.: +351 213 224 757 Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 52,000 employees in over 400 offices and 60 countries. In 2021, the firm had revenue of $10.1 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com © 2023 Cushman & Wakefield. All rights reserved. Cushman & Wakefield Av. da Liberdade, 131- 5º 1250-140 Lisboa Av. Da Boavista, 1837- 8º 4100-133 Porto www.cushmanwakefield.com
HEAD OF PORTUGAL Eric van Leuven eric.vanleuven@cushwake.com TRANSACTIONS Paulo Sarmento paulo.sarmento@ cushwake.com RESEARCH & INSIGHT Andreia Almeida andreia.almeida@cushwake.com OFFICES Carlos Oliveira carlos.oliveira@cushwake.com RETAIL Sandra Campos sandra.campos@cushwake.com INDUSTRIAL, LOGISTICS & LAND Sérgio Nunes sergio.nunes@cushwake.com HOSPITALITY Gonçalo Garcia goncalo.garcia@cushwake.com DEVELOPMENT & LIVING Ana Gomes ana.gomes@cushwake.com
INVESTMENT David Lopes david.lopes@cushwake.com BUSINESS SPACE & RETAIL INVESTMENT David Lopes david.lopes@cushwake.com ESG Ana Luísa Cabrita analuisa.cabrita@cushwake.com ASSET SERVICES Bruno Silva bruno.silva@cushwake.com RETAIL ASSET SERVICES André Navarro andre.navarro@cushwake.com PROJECT MANAGEMENT Carlos Pueyo carlos.pueyo@cushwake.com VALUATION & ADVISORY Ricardo Reis ricardo.reis@cushwake.com BUSINESS DEVELOPMENT Isabel Correia isabel.correia@cushwake.com
