MARKETBEAT PORTUGAL,
AUTUMN 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
2023
According to Moody's Analytics, Portugal’s GDP growth is set to slow down to 2.3% in 2023 (following an increase of 6.7% in 2022), however, it is still one of the highest growth rates in the Eurozone. Private consumption will be curbed, due to households’ reduced purchasing power, which is forecast to increase by 0.8% in 2023.
GDP
PRIVATE CONSUMPTION
EXPORTS
INFLATION
UNEMPLOYMENT RATE
+2.3%
-1.2%
+3.9%
+0.8%
+6.1%
6.4%
Global uncertainty continues to cast a shadow over investment, pushing it downwards by 1.2% this year. After soaring to 7.8% in 2022, inflation is now expected to ease gradually and is likely to drop to 3.9% in 2023. Regarding the labour market, unemployment in Portugal is expected to increase temporarily to 6.4% in 2023.
One of the main economic drivers will be the external sector, with a projected growth of 6.1% in exports, benefitting from the improvement in global supply chain disruptions, and also strongly fuelled by the continued recovery of the tourism sector.
Source: Moody's (September 2023)
Economic Forecasts
2024 / 2025
For the next two years, GDP is forecast to slow to 1.3% in 2024, recovering to 2.0% in 2025, driven by lower growth in both private consumption (+0.2%) and exports (+0.2%).
+1.3% / +2.0%
+4.7% / +1.8%
+1.8% / +1.6%
+0.2% / +0.8%
+0.2% / +2.0%
+5.9% / +5.6%
A steady reduction in inflation rates is expected, to 1.8% in 2024 and 1.6% in 2025. In the labour market, pressure from demand will continue, and despite an estimated 0.4% decrease in job creation in 2024, the unemployment rate is foreseen to drop to 5.9% in 2024 and 5.6% in 2025.
Investment will gather momentum, against a backdrop of falling global raw material prices and an improvement in global supply chains, combined with the arrival of EU funding, offsetting the negative impact of interest rate hikes.
GREATER LISBON
Greater
Lisbon
TAKE-UP
NEW COMPLETIONS
AVERAGE DEAL SIZE
UNDER CONSTRUCTION
VACANCY RATE
62,500 sq.m (-70%)
630 sq.m (-57%)
7.3% (+0.4 p.p.)
36,000 sq.m
268,900 sq.m
Source: Cushman & Wakefield; LPI
Take-up by semester and average deal size
The Greater Lisbon office market was marked by a significant year-on-year decline between January and August 2023, with a take-up of no more than 62,500 sq.m, the second lowest of the last decade. This sharp decline was influenced by the atypical previous year when a historical high was reached, mainly due to the completion of several large-scale deals. Additionally, occupiers are exercising more caution given the current macroeconomic situation, and this, coupled with the impact of the hybrid work format, led to a reduction in the average area occupied by several companies. Unlike recent years, not only were there no pre-leases recorded amongst the largest deals of the first half of the year, but the majority of these occurred in refurbished units. Nevertheless, the main deal involved the lease of 4,600 sq.m. in the newly completed Lumnia building at the Exeo Office Campus by Emma - The Sleep Company, which simultaneously contributed to the Parque das Nações (Zone 5) area accounting for around a quarter of total demand, and the TMT's & Utilities sector representing a third of the activity.
Main transactions
Given the current landscape, the vacancy rate continued its upward trend, increasing by 0.4 p.p. to 7.3%. On the other hand, the lack of high-quality spaces continues to be addressed, with 36,000 sq.m of new completions to date, of which only 20% remains available to lease. Future supply is expected to reach 368,800 sq.m over the next 3 years, with 268,900 sq.m currently under construction, of which 43% has already secured occupation.
Main new completions
Vacancy rate by zone
Source: Cushman & Wakefield
Main projects under construction
Average and prime rents
Despite reduced occupier activity, the scarcity of quality supply during the first quarter was reflected in the rental values, pushing up headline rents by €1/sq.m/month in the Central Business District (CBD) - Zones 1 and 2.
GREATER PORTO
GRANDE PORTO
Porto
39,300 sq.m (+18%)
870 sq.m (+10%)
8.4% (+0.1 p.p.)
23,900 sq.m
74,600 sq.m
In contrast to the capital, the Greater Porto office market saw an increase during the first 7 months of the year, boasting a take-up of 39,300 sq.m. The four largest deals were occupied by entities who need to remain confidential for now, including the total occupation of the 7,820 sq.m Boavista Office Center (BOC), and two pre-lets, namely of 5,650 sq.m in the ICON Offices project and 4,300 sq.m in the Lionesa Business Hub. The CBD Boavista (Zone 1) was the most sought-after area, accounting for more than 35% of the take-up, with the Other Services sector corresponding to 43% of the leased area.
Source: Cushman & Wakefield; PPI
When compared to 2022, the vacancy rate has stabilised, with a slight adjustment of +0.1 p.p. to 8.4%. Over the first six months of the year, a total of 23,900 sq.m were completed of which only 20% remain to be leased. Meanwhile, future supply continues to rise, with the development of 137,800 sq.m foreseen by 2025 of which 74,600 sq.m are under construction, with occupancy of half of the area already secured.
The slowdown in demand has contributed to stable prime rents across the region.
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 impact of remote work, which has predominantly led to a hybrid work model, has had an impact on the way organisations design their office space, shifting 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 seen solely as an area where people exclusively work, but have become spaces to meet, collaborate and share. Larger projects offer a wider range of services and create both work and leisure experiences.
High impact on new buildings and main occupier demands, especially vis-à-vis sustainability issues. There is a need to adapt existing properties. 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. Increased preference by landlords to provide tenants with incentives.
There is a trend towards a slight increase in the vacancy rate, as a result of the start of construction and completion of some larger properties and due to lower demand. Some space released for sub-letting by some of the largest occupiers.
RETAIL SALES INDEX
130 (+2.1%)
In the first half of 2023, sales volume in the retail sector saw a year-on-year growth of 2.1%, which stood at 8.4% in nominal terms, due to the increase in prices. However, it is worth noting a slowdown since the beginning of the year.
Total
118 (+1.0%)
Food Retail
143 (+3.1%)
Non-food Retail
RETAIL SCHEMES
0 sq.m
New Completions
93,500
Pipeline
2
3
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
1
Data is adjusted to accommodate calendar and seasonal effects.
Source: INE; data deflated and adjusted for calendar and seasonal effects; Index base 2015 = 100; accumulated values as of June
Regarding retail development, although no openings were recorded in the first half of the year, 93,500 sq.m of GLA are expected to be opened by 2025, more than half of which in the remaining months of 2023. Retail parks remain the most popular format for new supply, representing 75% of the total area.
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 * Pipeline
Retail
Schemes
New openings
The first half of the year was marked by some stagnation in retail demand, with Cushman & Wakefield’s proprietary transactions database registering 230 new openings with an estimated total area of 115,000 sq.m, a year-on-year drop of 5%. Appetite for high street retail declined, representing 62% of the deals, with stand-alone units increasing by 5 p.p., to 13%. Similarly, the Food & Beverage (F&B) sector became less dominant, with 41% of the new openings; largely influenced by the 6 p.p. increase in the leisure and culture sector.
230 (-5%)
62%
High Street Retail
41%
F&B
4
Non-random sample of retail demand aggregated by Cushman & Wakefield based on public sources and targeted fieldwork.
Demand
RETALHO
Procura
5
Accumulated values as of June.
The city of Lisbon remains the most sought-after, attracting 35% of the new openings in Portugal, mostly in the high street. The F&B sector benefitted from more than half of the deals, with ethnic and themed concepts showing increased activity, in addition to growing interest from new neighbourhood bakery concepts, which are in closer proximity and more convenient, a trend recently also seen with supermarkets.
80 (-10%)
93%
53%
The city of Porto commanded the second-highest number of openings in the country, benefitting from 45 units, predominantly in the high street, with the Baixa area attracting 31% of the new supply. F&B remained the most active sector exemplified by the expansion of the national brands Padaria Portuguesa and Jeronymo (Jerónimo Martins Group), each with two new stores.
45 (-18%)
87%
Prime rents
Despite the slight downturn in demand, the scarcity of supply in the main high streets in Lisbon contributed to a general upward shift of rents by €2.5/s.q.m/month, remaining stable in Porto, for now. In the shopping centres, the increase in prime rents followed that of high street retail in the capital, while headline rents in retail parks also increased, given the current growing interest in this format.
RETAIL: TRANSFORMING SHOPPING INTO AN IMMERSIVE EXPERIENCE
EMBRACING SOCIAL MEDIA AND EXPLORING THE METAVERSE
DISCOUNTERS ARE IN FASHION
Synergies 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, promoting recyclable products.
Brands are increasingly testing their new concepts on social networks. Convergence and symbiosis between physical and digital retail (hybrid models).
Very aggressive expansion plans by several newcomers. A flexible pricing policy, resistant to changing economic circumstances.
SUSTAINABLE SHOPS AND THE CIRCULAR ECONOMY
Main
Indicators
In the first half of 2023, Portuguese trading activity contributed to greater stability in the trade balance, with exports increasing by 13% and imports decreasing by 9%.
IMPORTS
SALE / LEASE
€47.4 billion
8,790 sq.m
307,800 sq.m
€37.7 billion
54%
(+13%)
(-9%)
(+54%)
(+19%)
Source: INE; Cushman & Wakefield; IPI
6
Excluding fuel and lubricants; accumulated values as of June.
12,7%
LOGISTICS VACANCY RATE
IN GREATER LISBON
12.7%
INTERNATIONAL TRADE OF GOODS
7
Following a slowdown in 2022, the industrial & logistics annual take-up returned to its growth trend, with 307,800 sq.m transacted, a year-on-year increase of 54%. With 35 deals, the average deal size increased to 8,790 sq.m, driven by several large-scale transactions. Among these, the future occupancy of logistics units by three companies in the food sector stands out, namely Lidl with 54,000 sq.m in Loures, the second phase of Mercadona’s 47,000 sq.m Almeirim project and Aldi with 41,400 sq.m in Santo Tirso.
Source: Cushman & Wakefield; IPI
Reversing the recent trend of speculative development, as opposed to build-to-suit projects, the latter accounted for more than half of the total take-up. The regions of Lisbon and Porto remain the most popular, accounting for 43% and 34% of total take-up, respectively.
The Greater Lisbon logistics market currently encompasses 2.8 million sq.m and has a vacancy rate of 12.7% (the majority of which relates to low-quality spaces). A significant proportion of this available area does not meet the current demand for quality projects, which continues to drive the development of new projects. The main completed logistics projects during the first half of the year took place in this region, notably the second phase of the Rainha Green Logistics Park in Azambuja and the expansion of LogPlace Póvoa de Santa Iria, occupied by Trucking Transportes.
Among the main future supply currently under construction, noteworthy projects in Greater Lisbon include the Montepino project in Castanheira do Ribatejo, which will be occupied by Leroy Merlin, and the recently announced Benavente Logistics Park promoted by Invesco and Magna. In parallel, Greater Porto is set to benefit from the Panattoni project in Valongo. Also in this region, the Ermida Park in Santo Tirso, a 30,000 sq.m project by Logicor, is also under development.
Excluindo combustíveis e lubrificantes
URBAN LOGISTICS
(LAST MILE)
€6-7 / sq.m / month
As a result of ongoing demand and the consequent development of high-quality projects, rents for logistics spaces have risen in most areas, 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
The continued growth of the e-commerce market has led to heightened demand for logistics properties, resulting in a shortage of supply and an increase in rents.
Urban (or proximity) logistics, which seeks to accommodate an ever-more demanding customer who expects to receive the product or service in the shortest time possible, continues to drive high demand. Large companies must redesign their logistics operations to become more efficient. Older warehouses are being restructured and refurbished, often hampered by the slow licensing processes.
Globalisation and the search for economies of scale have led to manufactoring 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 warehousing, as well as industrial units by companies in the green energy sector, has also risen.
The rapid advance of technology, the increased need for data storage, data protection, streaming platforms, and the widespread use of cloud computing, have led to an expanding market for “Data logistics” , and several transactions have already occurred in Portugal. Portugal has definitively caught the attention of the biggest data centre operators, as it is strategically located and perceived as a safe country, with low latency (i.e., high internet speed) and sufficient availability of power.
CONTINUED interesT in urban logistics
Tourism
During the first half of 2023, tourism activity in Portugal continued its positive revival compared to the same period of the previous year, with an increase across all indicators. Over this period, the number of guests and overnight stays country-wide recorded year-on-year increases of 21% and 18%, respectively, particularly influenced by the growth of foreign visitors, accounting for 60% of overnight stays, with Portugal remaining popular with long-haul markets such as North America, which is one of the top 5 emission markets. A year-on-year increase in overnight stays was seen across the country compared to 2022, with the Lisbon area and the Northern region proving to be the most popular, recording variations of over 20% compared to the same period last year.
TOURISTS
OVERNIGHT STAYS
REVPAR
TOTAL REVENUES
OCCUPANCY RATE
10.9 million
27.9 million
€2,170 million
€60.5
61.4%
Source: INE; Turismo de Portugal
(+21%)
(+18%)
(+31%)
(+28%)
(+8 p.p)
8
Accumulated values as of June
During this period, tourists entering the country were still required to present a digital certificate or a negative COVID-19 test.
Pipeline by region
As a result of increased demand, hotel revenues boasted sharp increases, particularly in total revenue, which was 31% higher than the same period in 2022. The RevPAR (Revenue per Available Room) rose by approximately 28% to €60.5, and the occupancy rate (per room) stood at 61.4%, reflecting a year-on-year increase of 8 percentage points (p.p.). By region, the Lisbon metropolitan area (+37%), the Autonomous Region of Madeira (+32%) and the Northern region (+31%) experienced the highest increases in RevPAR.
Overnight stays and RevPar by Region
9
New Supply
Since the beginning of the year, 30 new hotel projects have opened with more than 2,100 keys, of which more than 60% in the 4-star category. The Lisbon and Porto municipalities benefitted from the majority of this new supply, with 12 new openings totalling 880 keys. Notable openings include the Renaissance Porto Lapa Hotel (4 stars), the Masa Hotel Campo Grande (4 stars), the Barceló Funchal Oldtown (5 stars), and the opening of two 3-star B&B Hotels in Guimarães and Oeiras.
Main openings
Até 2025
Regarding future supply, there are 90 new projects in the pipeline and/or construction phase, which are expected to open in the next 3 years, totalling 8,200 keys, mostly 4- and 5-star hotels (32% and 31%, respectively) in the metropolitan areas of Lisbon and Porto.
+30
Hotels opened in 2023
+2,105
New Keys
In the first six months of the year, the city of Lisbon continued to welcome the vast majority of tourists arriving by air or sea. Between January and June, nearly 16 million passengers arrived at Humberto Delgado Airport, an increase of more than 30% compared to the first half of 2022. Cruise tourism in Lisbon also saw considerable growth, with 293,000 passengers recorded during this period, a boost of 70% from the previous year. During this period, the capital recorded 7.2 million overnight stays in tourist accommodation (including hotels and short-term rentals), which is a year-on-year increase of 9%. Consequently, Lisbon's operational indicators reflected a positive evolution, with an increase in RevPAR to €136.4 and the occupancy rate standing at 81.2%, on par with the previous year.
15.9 million
7.2 million
81.2%
€136.4
There were 6 new hotel openings, totalling 440 keys, predominantly 4-star units. By 2025, 15 more hotels with 1,600 keys are expected, with 5- and 4-star categories remaining dominant (37% and 28%, respectively). Prominent examples are the Meliá Lisboa (5 stars, 240 keys) and the Moxy Alfragide Lisbon (3 stars, 220 keys).
AIRPORTS
CRUISE TERMINALS
OCCUPANCY RATES
TOURIST ARRIVALS
(+9%)
(-0.1 p.p.)
(+16%)
293 thousand
(+69%)
Source: INE; APL
In touristic establishments
10
11
In hotel establishments
12
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.
Francisco Sá Carneiro Airport recorded the second-highest volume of traffic between January and June 2023, totalling 7.1 million passengers, representing a year-on-year growth of 28%. In terms of cruise tourism, during this period the number of passengers recorded at the Port of Leixões was almost 30% higher than the previous year, totalling around 68,000 passengers. The number of overnight stays in tourist accommodation in Porto increased almost 30%, reaching 2.7 million, with RevPAR showing an average of €106.3 and the occupancy rate standing at 76.8%. Throughout the first half of the year, 6 new hotels opened in the city, mostly in 4- and 5-star categories, adding 430 new keys to supply. The estimated pipeline, for the next 3 years, totals 3 new hotels with 250 keys, equally distributed between 4- and 5-star categories.
7.1 million
2.7 million
76.8%
€106.3
Major new openings expected include the Meliá São João da Madeira (4 stars) and the Altis Porto Hotel (5 stars), both with 100 rooms.
(+29%)
(+5.5 p.p.)
(+15%)
68 thousand
(+88%)
Source: INE; APDL
13
14
15
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
PUTTING SUSTAINABILITY FIRST
From observation to action
Leisure and lifestyle at an advantage
Despite the evident rising cost of living, hotel activity has been increasing and it is expected that demand will continue to grow, especially in the leisure destinations. 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.
The need to adapt assets and companies to ESG policies has become more and more apparent to players in this sector , and pressure to prioritise and integrate this trend into both new and existing projects is now gaining considerable momentum.
Differences between robust operational indicators and the increase in the cost of capital lead to a serious disparity in the perceived value of assets between buyers and sellers. However, past and ongoing deals show an increase in investment activity, demonstrating that sellers are more willing to reach a compromise based on the current economic context. 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.
Investors’ appetite lies predominantly in leisure and summer destinations, combined with urban destinations where their interest is divided between corporate and leisure segments. Investment activity remains active, with the ongoing capitalisation of investment funds, focusing on southern Europe, including Portugal.
Sale of
apartments
NR. UNITS SOLD
AVERAGE ABSORPTION TIME
AVERAGE PRICE
AVERAGE DISCOUNT AND ADJUSTMENT RATE
NEW
750
(-45%)
TOTAL
4,280
(+27%)
6,590/sq.m
(+7%)
4,490 sq.m
(+2%)
-1%
-7%
12 months
6 months
LISBON
880
(-42%)
2,530
(-21%)
4,110/sq.m
(-4%)
3,100 sq.m
(-7%)
-5%
11 months
PORTO
16
New and used
Source: SIR / Confidencial Imobiliário (SIR Ci)
Residential Projects Licensing
The successive increases in interest rates to curb inflation, and the consequent deterioration in spending power and rising prices, led to a downturn in demand. According to data from the Residential Information System (SIR)/Confidencial Imobiliário, the first half of 2023 recorded a drop in the number of apartments sold, despite the difference in terms of sales prices in Lisbon and Porto; future supply has also evolved differently in the two 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, during the first semester, the total value of mortgage lending was €8.9 billion, the highest in the last 17 years.
17
Accumulated values as of june; percentages correspond to the year-on-year variation of the indicators.
Sales price of apartments
In Lisbon, the average sales prices of apartments (new and used) presented a small year-on-year increase standing at €4,490/sq.m, marginally higher (+7%) for new properties. For both new and used properties, the Historical Centre commanded the highest sales prices (€5,560/sq.m), followed by the Traditional Zone (€5,170/sq.m), despite an 8% drop, with the biggest downward adjustment occurring in Parque das Nações (-13%), to €4,770/sq.m. The average discount and adjustment rate increased to 7%; with the average take-up time falling to 6 months. In terms of future supply, Lisbon recorded a considerable increase in the volume of licensed projects, while projects submitted for licensing remained stable.
Source: Cushman & Wakefield; SIR Ci
Price of apartments
18
The difference between the final sales price and the initial price offered for the property
19
In Porto, the sales prices of apartments decreased by 7%, to €3,100 /sq.m, and was lower (-4%) for new properties. Foz remains the most sought-after area, boasting the highest prices (4,120/sq.m), with the Historic Centre experiencing the biggest decrease (-16%) to €3,540 sq.m. The average discount and adjustment rate remain stable at 7%; with the average take-up time decreasing by a third, falling to 6 months. In terms of future supply, the city recorded a decrease of 23% in the volume of licensed projects and an increase of 62% in projects submitted for licensing.
Lease of
NR. LEASED UNITS
AVERAGE MONTHLY CONTRACTED RENT
60
(-53%)
1,150
(-36%)
€21.3/sq.m
€18.5/sq.m
(+26%)
-3%
3 months
2 months
50
(-10%)
240
(-20%)
€19.0/sq.m
€14.9/sqm
(+23%)
-2%
Novos e usados
Source: SIR Ci
During the first half of 2023, the imbalance between demand and supply remained in the private rented sector (PRS) in Lisbon and Porto, contributing to a general drop in the number of apartments leased, coupled with a significant increase in the average prices. Although the shortage of supply continues to generate interest among some developers to develop built-to-rent projects, their limited financial viability and lack of confidence in the sector’s legal framework lead to the majority of future projects in this segment being public initiatives.
Rental
Em estabelecimentos de alojamento turístico
Em estabelecimentos hoteleiros
As a result, rents in Lisbon increased to €18.5/sq.m (+26%), with new properties reaching €21.3/sq.m/month (+18%). The Historic Centre maintained its lead, despite recording the lowest year-on-year growth (+16%) in the city. In Porto, the average rental price increased by 23% to €14.9/sq.m/month, with new apartments recording a more pronounced increase (+31%) to €19.0/sq.m. Like Lisbon, the same area remained popular, namely Foz, despite being the only area to record a year-on-year drop in rent prices (-2%). The discount and adjustment rates remained stable, with the average take-up time mostly remaining at 3 months.
Rental Market
Market
Rental price of apartments
20
Student accommodation and CoLiving segments continue to suffer from a lack of supply, especially of purpose-built accommodation. During the first half of the year, Xior Lumiar (Lisbon) was completed with 500 beds. The ratio of beds per student remained stable at 13%, with a slight increase in activity by private operators who now represent around 40% of supply.
25,600
13%
38%
Student Accomodation
/ CoLiving
TOTAL SUPPLY (nr. beds)
PrivaTE OperaTors
PROVISION RATE
(=)
22
Ratio between number of beds and displaced national and international students
21
Variation compared to 2022.
*Pipeline Source: Cushman & Wakefield
23
Next 3 years
Heightened demand continues to attract the private sector, as well as encouraging the allocation of public investment to these segments, particularly through the National Plan for Housing in Higher Education (PNAES), through the Recovery and Resilience Plan (RRP). In this context, the supply forecast until 2025 has increased to 9,320 beds. Among future private supply, prominent examples include the Coletivo de Azúrem project (Guimarães) with 630 beds, in addition to the entry into the market of The Social Hub with a project in the Bonjardim development (Porto).
Main private pipeline
In the senior housing sector, the number of available beds is still rising, currently standing at 104,400. However, the rate of new openings did not keep pace with the ageing of the population, therefore contributing to the fact that the equipment ratio has not improved, remaining at 14%. The private sector continues to be driven by the high occupancy rate and lack of quality supply. Among these, the DomusVi group stands out with the opening of a 100-bed unit in the centre of Lisbon in the first half of 2023; as well as Portugal Senior Health Care (CoRe Capital), with two projects of 60 beds each. Looking ahead, over the next three years, more than 700 new beds are expected from among the main private operators, most of which projects with more than 100 beds, like the DomusVi group and the Círculo de Mestre chain that will each open 2 residences.
104,400
92%
26%
Senior
Living
(+1%)
(+2 p.p.)
Source: GEP; INE; ACSS
24
Ratio between the number of beds and population aged 80 and over; 2022 estimated population (Source: INE)
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
25
The bottleneck in the residential market is set to persist
The average price per bed in student accommodation and co-living projects will continue to rise
A shortage of senior housing options
Insufficient measures to promote new developments for the mid-end housing segment will continue to contribute to the growing imbalance in the market, fuelling rising prices. Rising interest rates and more stringent financing terms will drive the supply of new developments toward the higher-end segment.
The lack of confidence amongst developers, investors and landlords in the existing legal framework and fiscal policies that govern leases in Portugal was aggravated by the government’s ‘More Housing’ programme, foreseeing a decrease in the number of houses available to lease and the consequent rise in rents. The excessive taxation and the inadequate legal framework will continue to contribute to the absence of a specific built-to-rent product for the PRS, inevitably pushing rental prices upwards.
Demand still far exceeds supply, even with additional openings planned in the years ahead. The difficulty of finding accommodation in Lisbon and Porto has increased, with more and more families leasing accommodation that was previously shared by students or migrant workers.
Portugal has one of 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 could however be impacted by the difficulty of most Portuguese families to afford high monthly rates and, on the other hand, of hiring specialised staff, especially in locations outside the large urban centres.
Rental market will remain sluggish
Development &
Purchase of buildings for refurbishment or land for development
Main urban development and regeneration deals
26
Activity in the urban development and regeneration sector presented a year-on-year decrease of 13% during the first half of the year, with a total transaction volume of €244 million spread over 19 deals. Noteworthy examples include the sale of EDP's land in Rua do Ouro, in Porto, to the M Caetano Group for an estimated amount of €45 million; and Besix's purchase of 50% of the Wellbe project from Atenor for €24-26 million.
27
Information based on internal and public sources
Photo: Atenor.eu
Aquisições de edifícios para reabilitação ou terrenos para promoção
Real estate projects under licensing
Regarding future supply, 3.9 million sq.m were submitted for licensing in mainland Portugal during the first half of the year, across more than 11,000 projects, reflecting year-on-year increases of 8% and 9%, respectively. In terms of area, most of the projects submitted for licensing are for residential use (75%) and new construction (82%). In terms of the type of construction, the weight of new development varied standing at 62% in the office sector and 89% in residential.
Baseada em fontes internas e públicas
Real estate projects licensing
Between January and June 2023, the licensing of real estate construction projects in Lisbon followed an asymmetric pattern compared to the same period last year, with a drop in licensed projects and an increase in projects submitted. However, regarding the former, there was an increase (+154%) in the average area per residential project to almost 2,400 sq.m. Refurbishment projects took precedence over new construction during the period, with slightly more than 60% of the licensed area.
184,700 sq.m
308.100 sq.m
(-41%)
LICENSED
Submitted for licensing
Licensed real estate projects
Próximos 3 anos
The area of projects submitted for licensing increased by 26% and it is worth highlighting the office sector with 56,000 sq.m, more than four times the area submitted in the same period last year. Construction costs remained stable, with average costs (excluding VAT) in Lisbon varying between €1,450/sq.m and over €1,900/sq.m for new construction and between €1,700/sq.m and over €2,100/sq.m for refurbishment projects.
Construction costs by segment
As in Lisbon, Porto also showed an unlikely trend concerning the area of construction submitted for licensing and licensed. The former increased by 71%, with the number of projects rising by almost 90%, to around 200. The construction area of licensed projects fell by 19%, although the number of projects remained stable compared to the same period last year. In this region, there was a balance between the area for new development and refurbishment.
155,100 sq.m
(+71%)
164,500 sq.m
(-19%)
LICENseD
Regarding new licensed area, the residential sector took the lead (76%); with new development dominating in this sector (64%) compared to refurbishment. Additionally in Porto, construction costs remained stable, with prices (excluding VAT) varying between €1,400/ sq.m and over €1,800/sq.m for new construction and between €1,500/sq.m and over €1,900/sq.m for refurbishment projects.
Residential development will continue to be a priority
Heightened demand and scarcity of supply, especially in the mid-end housing segment, will continue to drive developers and investors to look for innovative solutions to develop more homes for the middle class. The government’s ‘More Housing’ programme does not include tax benefits or incentives for new construction in locations that appeal to the mid-end segment, so several larger-scale residential projects, mainly located in the suburbs, are likely to continue to be delayed. Investment in residential projects for the high-end and luxury segments, fuelled by growing demand from international buyers less dependent on financing, is likely to continue.
The demand for more practical, modern and, above all, environmentally and energy- efficient offices will become increasingly evident, freeing up more older buildings for conversion into housing or tourism in central locations, allowing for a new cycle of urban regeneration in the cities of Lisbon and Porto.
The emergence of a new generation of offices
Commercial Real Estate
Investment
Despite the challenging economic landscape, investment activity in commercial, income-producing real estate continued to gather momentum in the first half of 2023, with a total investment volume of €749 million, 17% above the same period in 2022. With approximately 40 transactions, the average deal size stood at €20 million. Predominantly influenced by the conclusion of some large-scale deals, the 3 largest represented close to 60% of the volume invested. This upwards trend was also influenced by the increase in foreign investment, which accounted for 77% of the total volume, with domestic capital contracting to €172 million.
TOTAL VOLUME
NATIONAL Investment
€749 million
(+17%)
56%
Mouse hover to see the notes
28
Institutional investment in completed and income-producing real estate properties
Investment by semester
29
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
Retail assets regained the lead with 38% of the total volume invested, at €284 million. The two largest deals corresponded to purchases of portfolios in the food segment, namely LCN Capital Partners’ purchase of the Amália project from TREI (50 Pingo Doce and Continente supermarkets) for €140-150 million and Savills IM’s purchase of 4 Continente Modelo units for €39 million from M&G. The hospitality sector followed closely behind, representing 36% of the total volume invested, at €271 million, with Arrow’s purchase of the Dom Pedro portfolio from Saviotti for €250 million being the most significant. The office sector only attracted 14% of the transaction volume, at €105 million. In this segment, BNP Paribas REIM’s purchase of the Pier III building from Períptero for €30-35 million stands out. Other sectors corresponded to 9% of the total volume invested; essentially influenced by Live Nation’s purchase of Ritmos & Blues, which includes Altice Arena, a large events venue, for around €50 million. Lastly, the industrial and logistics sector secured merely 3% of the amount invested, including the sale & leaseback of the DanCake portfolio acquired by Square Asset Management for €22 million.
Main investment deals
Commercial real estate component
The current international economic context has caused further increases in prime yields, of between 25 and 50 basis points, in the main sectors of the commercial real estate market since 2022.
31
30
Nr. of keys of the transacted hotels (circa 85% of the commercial real estate component, as it excludes the golf courses)
Value for room (€/room).
In case of a range in the “Value (M€)” column, the calculation of this indicator is based on the range’s average value.
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 Despite the growth recorded during the first half of 2023, investment activity is likely to decline until the end of the year. Against this backdrop, with around €1,180 million in deals currently in various stages of negotiation, we estimate that this year will see a transactional volume slightly below €2,000 million, reflecting a year-on-year fall of about 36%. In terms of distribution by asset class, the hotel sector will take the lead, attracting 40% of the total volume, followed by the retail sector and offices with 30% and 20%, respectively. These estimates could include up to an additional €600 million of deals currently pending (but that may be concluded by the end of the year), as well as the usual off-market operations.
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 generate transactions, however...
Continuation of the disparity in price expectations between sellers and buyers. The differential between yields on income-producing real estate and the so-called "risk-free assets" is very low, placing upward pressure on yields.
Retail, industrial & logistics and hospitality sectors: good occupier performance supports rent increases for the best assets. Offices: low take-up to date affects the market. Rent indexation (when not limited by law) to inflation helps support valuations. New or recently refurbished assets, with excellent ESG credentials, are more resilient.
Open-ended funds, pension funds and local 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; there are currently little or no signs of 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
Given the more demanding criteria on the part of both occupiers and investors, decision-making processes increasingly include corporate sustainability concepts, as well as ESG criteria.
Source: BREEAM and LEED
In light of the increased regulation at the European level, 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, is rapidly taking precedence.
32
New certification or renewal; only includes the projects listed by the respective entities (some projects are anonymous and therefore not published).
Within the scope of sustainable building certificates, namely BREEAM and LEED, a dozen buildings were certified during the first half of the year, the same number when compared to the same period last year. They were mostly issued in the retail sector, for new construction/refurbishment (vs. buildings in use). In terms of future certification , data for which is only available for LEED, currently more than 50 buildings are registered.
The WELL certification is focused on the use of the building and the well-being of its users and, in 2023, the Nestlé headquarters (owned by Merlin Properties) in Linda-a-Velha, obtained the first WELL certification in Portugal. The office sector continues to dominate future certification, with over 40 projects registered.
34
New certification or renewal; only includes the projects listed by the respective entities (some projects are anonymous and therefore not published)
33
Certification requests submitted.
Response to climate change
Value chain integration INTO CORPORATE ACTIVITIES
Reporting of non-financial indicators and classification of investments regarding sustainability
Focused on reducing the carbon footprint in order to comply with the goal of not exceeding 1.5ºC and mitigating the growing cycle of climate change, which the world has effectively been experiencing. This effort involves investors, owners and tenants and ranges from the development of new projects and refurbishments to the choice of construction materials to reduce embodied carbon locked in new buildings, or measures to reduce energy consumption in the operation of existing buildings, through the use of energy audits, Life Cycle Analysis or tools such as Carbon Risk Real Estate Monitor (CRREM), which determines the carbon obsolescence of a building.
Which manifests itself as the demand for differentiated and sustainable assets that value and foster well-being and appeal to talent by offering a wholesome experience, the convenience of services and facilities, and networking opportunities. As a result, there is a clear trend towards assets obtaining sustainability certification (LEED or BREEAM) and promoting the health and well-being of employees (WELL or FITWELL). The residential sector has also benefitted from an increase in certification compliance, mainly in the luxury segment, and primarily centred on BREEAM.
As these impacts need to be integrated into the reporting of non-financial indicators. Companies are now looking beyond merely their own activity and are beginning to consider the wider impact, for instance through their supplier base.
Due to the Regulation on the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR). The market continues to respond and classify existing investments and assets based on Taxonomy criteria, and include ESG principles into corporate strategy.
Valuing human capital
For further information or additional copies of this or other reports, please contact: MARKETING & COMMUNICATIONS Miguel Sena miguel.sena@cushwake.com Tel.: +351 213 224 757 Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in approximately 400 offices and 60 countries. In 2022, the firm reported revenue of $10.1 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), Environmental, Social and Governance (ESG) and more. 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 João Esteves joao.esteves@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
