MARKETBEAT PORTUGAL,
SPRING 2024
A Cushman & Wakefield publication
01
ECONOMY
02
OFFICES
03
RETAIL
04
INDUSTRIAL & LogIsticS
05
HOSPITALITY
07
DEVELOPMENT
08
INVESTMENT
09
SUSTAINABILITY
///////////////////////////
ÍNDICE
06
LIVING
Economic Indicators
2023
According to Moody's Analytics, Portugal's GDP growth slowed to 2.3% in 2023 (following an increase of 6.7% in 2022); however, it remains one of the highest growth rates in the euro zone. Additionally, during the past year, the national economy recorded a budget surplus of €4.3 billion (compared to a deficit of €3.5 billion in 2022); the goal of reducing public debt to less than 100% of GDP was achieved (one year ahead of schedule); and three of the main international rating agencies improved Portugal's sovereign debt rating to the A level (with S&P following the same trend in 2024.
GDP
PRIVATE CONSUMPTION
EXPORTS
INFLATION
UNEMPLOYMENT RATE
+2.3%
+0.6%
+4.3%
+1.4%
+3.8%
6.4%
Global uncertainty continued to shape investment with activity almost coming to a stand still in2023. As for inflation, after reaching the highest level this century in 2022 (7.8%), it gradually eased during the past year, to 4.3%. The unemployment rate in Portugal temporarily rose to 6.4%.
Against a backdrop of rising interest rates, private consumption was curbed due to the decline in household purchasing power, despite a 1.4% growth last year. One of the main economic drivers was external demand, with a growth of 3.8% in exports, predominantly fueled by the recovery of the tourism sector.
Economic Forecast
2024 / 2025
Over the next two years, GDP is expected to slow to 1.4% in 2024 and gradually recover to 1.8% in 2025. According to Moody'sAnalytics, the recent parliamentary elections are not expected to impact the outlook for the Portuguese economy, given the country's historical political stability and relatively moderate party ideologies.
+1.4% / +1.8%
+4.3% / -0.2%
+2.9% / +1.1%
+1.3% / +0.6%
-0.9% / +2.4%
+6.0% / +5.7%
Moody's Analytics predicts that the European Central Bank will begin to reduce benchmark interest rates in the spring of 2024, reaching the target of 2% by the end of 2025. Inflation in Portugal, is expected to gradually fall to 2.9% in 2024 and 1.1% in 2025. In the labour market, the unemployment rate is set to start returning to normal levels, particularly driven by the services sector, reaching 6.0% in 2024 and 5.7% in 2025.
Private consumption will continue to be affected by the limited growth in real disposable income per capita since 2019, with the implementation of European funds boosting investment, even in the context of high borrowing costs.
Source: Moody's (January 2024)
GREATER LISBON
Greater
Lisbon
TAKE-UP
NEW COMPLETIONS
AVERAGE DEAL SIZE
UNDER CONSTRUCTION
VACANCY RATE
112,500 sq.m (-59%)
740 sq.m (-46%)
6.3% (-0.6 p.p.)
36,000 sq.m
276,300 sq.m
Take-up by semester and average deal size
In 2023, the Greater Lisbon office market was marked by a 59% year-on-year decline with a take-up of 112,500 sq.m - the lowest in the last decade. On the one hand, this decline was influenced by the historic high reached in the previous year and, on the other, by the drop in demand (or postponement) due to the current economic situation, coupled with the impact of the hybrid work format dampening the appetite for office space. Amongst the top deals last year, worthy of note are the lease of the entire 5,680 sq.m of The Offices building by the Lusíadas group in the Western Corridor (zone 6); the lease of 4,600 sq.m in the Lumnia building of the Exeo Office Campus by Emma - The Sleep Company, in Parque das Nações (zone 5) and 3,860 sq.m in the Espace building by Intelcia; as well as the 4,130 sq.m take-up of Tower H in the Torres de Lisboa by Hospital da Luz in the New Office Areas (zone 3). These three zones accounted for more than 20% of total demand, with the TMT & Utilities sector representing a quarter of the take-up.
Suorce: Cushman & Wakefield; LPI
Main transactions
The vacancy rate contracted, decreasing 0.6 percentage points (p.p.) to 6.3%. Furthermore, development activity continues to address the lack of high-quality spaces, with 36,000 sq.m of new completions, of which only 21% remain available to lease. Future supply remains high and is expected to reach 392,200 sq.m over the next three years, with the vast majority (276,300 sq.m) currently under construction, of which 44% has already secured occupation.
Main new completions
Vacancy rate by zone
Source: Cushman & Wakefield
ESCRITÓRIOS
Grande
Lisboa
Main projects under construction
Source: Cushman & Wakefield; LPI
Average and prime rents
Despite reduced occupier activity, the scarcity of quality supply was reflected in the year-on-year increase in rental values, which pushed up headline rents by 1€/sq.m/month in most of the Greater Lisbon zones.
GREATER PORTO
Porto
50,050 sq.m (-14%)
780 sq.m (+2%)
9.1% (+0.8 p.p.)
37,300 sq.m
91,400 sq.m
The Greater Porto office market has shown greater resilience, with a year-on-year decline in take-up of 14%, covering a total of 50,050 sq.m. The market's largest deal was the lease of the entire 7,820 sq.m of the Boavista Office Center (BOC) by LACS, the national flex offices operator, making CBD Boavista (zone 1) the most sought-after area, representing a third of the take-up. Two pre-lets followed suit, namely 5,650 sq.m in the ICON Offices project by Deloitte Central Services and 4,300 sq.m in the Lionesa Business Hub by a confidential entity. In turn, Other Services and the TMT & Utilities sectors each corresponded to about 30% of the take-up.
Source: Cushman & Wakefield; PPI
Greater Porto's vacancy rate increased by 0.8 p.p. to 9.1%, mainly driven by the completion of some buildings at the end of the year, some of which are still available. In 2023, 37,300 sq.m were completed, of which 34% remain unoccupied. 149,800 sq.m are expected to be completed by 2026 of which 91,400 sq.m are under construction with a secured occupation of 23%.
Despite the slowdown in demand, the region also saw an increase of €0.5-1/sq.m/month in most rental values.
Trends
HYBRID WORK MODEL
Reshaping offices as workplace communities
ESG CRITERIA
RENT STABILISATION
MODERATE DEMAND REVIVAL
Workplace strategy - major occupiers are coming to grips with their office space needs (quantitative and qualitative). Hybrid work model - impacts the way organisations design their office space which now includes rotating workspaces and more collaborative zones. Most companies have opted to follow the hybrid model, whereby they assign a specific number of days per week (ranging from one to four) in the office.
Offices are no longer seen solely as an area where people exclusively work, but have become spaces to meet, collaborate and share. Larger projects embrace an in-situ communication and events strategy to foster a greater sense of community spirit among the occupiers.
High impact on new buildings and main occupier demands, especially vis-à-vis sustainability issues. The various real estate certifications are increasingly becoming a value driver, whether at the construction or operational level.
Following a steady period of growth, rents in all areas are expected to stabilise. Property quality, contract length and supply in each zone determine the incentives provided to tenants. The widespread increase in fit-out costs also plays a part in limiting the relocation of some companies and the stabilisation of rents.
Within the context of economic recovery, demand for offices has resumed (with a set workplace strategy in place) in addition to heightened pressure for quality spaces. Portugal remains appealing for shared service operations and for the specific projects of some multinational companies.
RETAIL SALES INDEX
107 (+1.0%)
Throughout 2023, the retail sector continued to recover, with retailers gradually resuming their expansion plans. The sales volume in the retail sector saw a growth of 1.0% in 2023 when compared to the same period in 2022. In nominal terms (i.e., without adjusting for inflation), it stood at 6.8%, particularly due to the increase in food prices (+9.8%).
Total
100 (+0.6%)
Food Retail
114 (+1.4%)
Non-food Retail
RETAIL SCHEMES
12,000 sq.m
New Completions
81,500 sq.m
Pipeline
2
3
Data adjusted for calendar and seasonal effects.
Fonte: INE
No trimestre anterior ao inquérito
Until 2026
1
Source: INE; data deflated and adjusted for calendar and seasonal effects; Index base 2021 = 100.
Mouse hover to view the notes
A total of only 20,000 sq.m GLA in new retail schemes were completed in 2023, notably Salinas Park (Vila Franca de Xira) and Casal do Marco Retail Park (Seixal). By 2026, it is likely that an additional 63,500 sq.m of GLA will be completed, 55% of which will in retail parks, and the rest in shopping centres such as the expansion of Centro Colombo (Lisbon) and the opening of City Center Covilhã.
Dados deflacionados e ajustados de efeitos de calendário e da sazonalidade; Índice com base 2015 = 100
Até 2024
Supply of Retail Schemes
Source: Cushman & Wakefield * Pioeline
Retail
Schemes
New Openings
According to Cushman & Wakefield’s proprietary transactions database, 660 new openings were recorded in 2023, 13% above the previous year. Appetite for high street retail remained dominant, representing 64% of all the new openings, followed by shopping centres with 18%. The Food & Beverage (F&B) sector remained popular with 44% of new leases, followed by the Others sector (including furniture, decor and DIY) with 18%. Recently arrived non-food, low-cost retailers, with ambitious expansion plans, were the most active over the past year, namely the Danish brand Normal (15 openings), the Polish brand Pepco (14 openings) and the German brand KiK (10 openings). In the food retail sector, Aldi opened 19 new units, Continente Bom Dia 17 and Mercadona 10. Non-random sample of retail demand aggregated by Cushman & Wakefield based on public sources and targeted fieldwork.
600 (+3)
64%
Hight Street Retail
45%
F&B
4
Non-random sample of retail demand aggregated by Cushman & Wakefield based on public sources and targeted fieldwork.
Demand
5
New openings
The city of Lisbon remains the most sought-after with 40% of all new openings in Portugal, mainly in the high street. The F&B sector benefitted from more than half of the deals, with ethnic and themed retail concepts showing increased activity, in addition to growing interest from new neighbourhood bakery concepts, offering the customer proximity and convenience, a trend recently also seen with supermarkets.
240 (+5%)
92%
High Street Retail
61%
The city of Porto commanded the second-highest number of openings in the country, benefitting from around new 120 units, predominantly in the high street, with the Baixa area attracting a quarter of the new supply. F&B remained the most prominent sector, exemplified by the expansion of the national brand Padaria Portuguesa with three new stores, and the food retailer My Auchan was the most active with four new openings.
100 (-4%)
83%
57%
Prime rents
The scarcity of supply in the main high streets contributed to an upward shift of rents by €2.5/sq.m/month to €125/sq.m/month in Chiado (Lisbon) and to €77.5/sq.m/month in Baixa (Porto). In the shopping centres, prime rents rose by €5/sq.m/month reaching €107.5/sq.m/month, while headline rents in retail parks also increased to €12.25/sq.m/month.
Brands with purpose and social responsibility
ATHLEISURE
Major players are increasingly investing in the integration of social responsibility and sustainability into their operations, looking to build stronger customer relationships and contribute to society. Retailers are adopting practices to reduce their carbon footprint, with a growing commitment to the promotion of social equity and the well-being of the communities involved in the supply chain. Consumers identify with brands that follow an ethical, environmentally and socially conscious and sustainable business model.
Brands are exploring new formats and locations and are creating more immersive experiences for consumers. This type of outlet allows brands to test new concepts and products, designed to attract new consumers and further engage with existing ones through innovation, thus providing differentiated, unique, and fun experiences.
A concept that combines sport and leisure, with a strong focus on fashion and well-being, is becoming more and more popular amongst consumers. There is an ongoing focus on the in-store experience by fashion and sports retailers. Health & beauty chains will continue to thrive, boosted by consumers with a greater sense of personal well-being and lifestyle.
The return of pop-up shops as a marketing tool
In 2023, Portuguese trading activity contributed towards maintaining the trade balance, with exports increasing by 1% and imports by 2%.
IMPORTS
LEASE / SALE
€92.9 billion
6,900 sq.m
450,800 sq.m
€72.6 billion
54%
(+1%)
(+2%)
(-22%)
(+8%)
Source: INE; Cushman & Wakefield; IPI
Excluding fuel and lubricants.
INTERNATIONAL TRADE OF GOODS
4.2%
€2.87 million sq.m
STOCK
GREATER LISBON LOGISTICS MARKET
Main Transactions
After reaching a historical high in 2021, industrial & logistics take-up slowed down over the last couple of years, declining by 22% in 2023, with 450,800 sq.m transacted – nevertheless, the third highest take-up for the last decade. Amongst the various large-scale deals, 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
In terms of the geographical distribution of demand, the regions of Lisbon and Porto remain the most popular, accounting for 48% and 25% of total take-up, respectively. Additionally, a relatively balanced distribution between speculative development and build-to-suit projects was observed.
The vacancy rate in the Greater Lisbon logistics market stood at 4.2%, underlining the scarcity of quality supply, thereby driving the development of new projects. Against this background, 97,600 sq.m were completed in 2023, all in Greater Lisbon and boasting a 100% take-up. The most notable new completions are the second building of the Rainha Green Logistics Park in Azambuja and the VGP Park Loures, pre-let to DPD and DHL Parcel.
Main projects under constructions
Furthermore, 533,400 sq.m of logistics space is currently under construction in Portugal, of which 64% has already secured occupation, mainly in Greater Lisbon (306,600 sq.m) and Greater Porto (123,000 sq.m). Noteworthy projects include Montepino project in Castanheira do Ribatejo, which will be occupied by Leroy Merlin, Mercadona's future Almeirim Logistics Platform and the Benavente Logistics Park.
Excluindo combustíveis e lubrificantes
URBAN LOGISTICS
(LAST MILE)
€6-7/sq.m/month
The development of high-quality projects has resulted in a widespread rise in prime rents, except for zone 1 in Greater Lisbon (Alverca-Azambuja) and Greater Porto (Maia-Via Norte), which remained stable at €5.00/sq.m/month. Meanwhile, the urban logistics segment in Porto saw an increase of €0.25/sq.m/month.
URBAN logistics
€5.25-6/sq.m/month
€5.25-6 / sq.m / month
Optimisation of operating costs
Modern and sustainable spaces at a premium
The growth of data centres and self-storage
Companies recognise that upgrading to new logistics spaces is more efficient from an operational viewpoint. Additionally, they consolidate their operations, by planning their future space needs in order to ensure expansion opportunities in the medium/long term.
Globalisation and the pursuit of economies of scale led to manufacturing and stockpiling centring mainly in Asia. The recent supply chain interruptions and stock shortages worldwide, including in Portugal, set off a trend for nearshoring, that is, installing new industries in Europe to meet local and regional needs. Demand for warehousing, as well as industrial units, from companies in the renewable energy sector, has also risen.
Much of the current stock is "dated" and occupiers as well as investors are primarily interested in modern properties with sustainability credentials. Heightened focus on larger assets, which are more functional and include amenities to enhance employee retention and meet ESG criteria.
The self-storage sector still has a lot of potential to grow throughout the country with older buildings being adapted for this purpose. Portugal has caught the attention of the biggest data centre operators, as it is perceived as a safe country and with sufficient availability of power.
Nearshoring fuelling demand
Tourism
Indicators
2023 confirmed the recovery of tourism activity in Portugal compared to the previous year, with an increase across all indicators, even exceeding the 2019 figures. Over last year, the number of guests and overnight stays recorded year-on-year increases of 13% and 10%, respectively. This was particularly influenced by the rise in foreign tourists, accounting for 70% of overnight stays, with Portugal remaining popular, especially with long-haul markets such as North America, which is now one of the top 5 emission markets. A double-digit, year-on-year increase in overnight stays was seen across the country compared to 2022, with the Northern region commanding the highest growth of 14%.
TOURISTS
OVERNIGHT STAYS
REVPAR
TOTAL REVENUES
OCCUPANCY RATE (KEY)
23.9 million
62.9 million
€5,230 million
€72.1
66.3%
Source: INE; Turismo de Portugal
(+13%)
(+10%)
(+19%)
(+16%)
(+5 p.p.)
6
In touristic establishments.
Pipeline by region
Hotel revenues boasted sharp increases, particularly in total revenue, which was 19% higher than the same period in 2022. The RevPAR (Revenue per Available Room) rose by 16% to €72.1, and the occupancy rate (per room) stood at 66.3%, reflecting a year-on-year increase of 5 p.p. By region, the Autonomous Regions, namely Madeira and Azores, experienced the highest increases in RevPAR, 23% and 20%, respectively.
Overnight stays and RevPAR by region
Source: INE
7
The Short-Term Rental segment accounted for 11.4 million overnight stays and 4.8 million guests, an increase of 16% and 17%, respectively, compared to 2023. Total revenue grew by 27% to €559 million, with RevPAR rising by 16% to €42.4.
Por seu lado, o segmento de Alojamento Local foi responsável por 5,0 milhões de dormidas e 2,1 milhões de hóspedes, num crescimento face a 2022 de 23% e 25%, respetivamente. Os proveitos totais registaram um crescimento de 40% para os €227 milhões, com o RevPAR a subir 28% para os €36,8.
New Supply
In 2023, more than 50 new hotel projects opened with 3,340 keys, of which more than half in the 4-star category. The Lisbon and Porto municipalities benefitted from most of this new supply, with 22 new openings, totalling 1,600 keys. Notable openings include the Moov Lisboa Oriente (2 stars, 180 keys), the Renaissance Porto Lapa Hotel (4 stars, 160 keys) and the Masa Hotel Campo Grande (4 stars, 150 keys.
Main openings
Até 2025
In terms of future supply, there are 100 new projects in the pipeline and/or construction phase, which are expected to open in the next three years, totalling 10,040 keys, mostly 4- and 5-star hotels (30% and 38%, respectively) in the metropolitan areas of Lisbon and Porto.
+50
Hotels opened in 2023
+3.340
New keys
In 2023, the city of Lisbon continued to welcome considerably more tourists arriving by air or sea. Humberto Delgado Airport saw a year-on-year increase of 19%, reaching 16.9 million passengers. Cruise tourism also saw considerable growth, with 758,000 passengers recorded during this period, an increase of 54% from the previous year. During this period, the capital recorded 15.1 million overnight stays in tourist accommodation (including hotels and short-term rentals), which is a year-on-year increase of 14%. Consequently, Lisbon's operational indicators reflected a positive evolution, with an increase in RevPAR to €114.9 and the occupancy rate standing at 75.8%, ahead of the previous year.
16.9 milion
15.1 million
75.8%
€114.9
There were 15 new hotel openings, totalling 1,080 keys, predominantly 4-star units. By 2026, 18 more hotels with 2,000 keys are expected, with the 5-star category prevailing (43%). Prominent examples are the Meliá Lisboa (5 stars, 240 keys) and the Moxy Alfragide Lisbon (3 stars, 220 keys).
AIRPORTS
CRUISE TERMINALS
OCCUPANCY RATE
TOURIST ARRIVALS
(+14%)
(+5.7 p.p.)
(+22.2%)
TOURISTS ARRIVALS
758 thousand
(+54%)
Source: INE; APL
9
10
In hotel establishments.
11
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
8
Francisco Sá Carneiro Airport recorded 17.6 million passengers, representing a year-on-year growth of 21%. In terms of cruise tourism, the number of passengers recorded at the Port of Leixões was 37% higher than the previous year, totalling around 149,000. The number of overnight stays in tourist accommodation in Porto increased 15%, reaching €5.5 million, with RevPAR showing an average of €86.8 and the occupancy rate standing at 69.9%. Throughout 2023, seven new hotels opened in the city, mostly in the 4-star category, adding 510 new keys to supply.
17.6 million
5.9 million
69.9%
€86.8
The estimated pipeline, for the next three years, totals seven hotels with 600 keys, equally distributed between 4- and 5-star categories. Major new openings expected include the B&B Hotel Madalena with 180 keys and the Meliá São João da Madeira (4 stars) with 100 keys.
OCCUPANCY Rate
(+22%)
(+6.8 p.p.)
(+20.4%)
(+21%)
149 thousand
(+37%)
Source: INE; APDL
13
14
15
12
Country competitiveness
Rise in foreign tourists
Recovery in business travel
Converging hospitality and living concepts
The fundamentals of tourism activity remain (with country safety a top priority).
The value proposal of Portugal as a tourist destination remains positive when it comes to the quality-price ratio compared to other European destinations. A resurgence in travel activity by Europeans (according to the latest European Travel Commission report, 71% of Europeans plan to maintain or boost their travel budget). The outlook for revenge travel of the Chinese market foresees an inflow of 33 million tourists to Europe (Oxford Economics predicts an 82% surge in arrivals).
Operators report an increase in this segment. As reported in a recent Global Business Travel Association study, spending in the global business travel is expected to surpass 2019 levels in 2024 (2 years sooner than previously forecast).
Shifts in consumer trends have led investors to look for unconventional hospitality concepts. Challenges experienced in terms of labour supply and operating costs have fuelled the emergence of new concepts for long-term stays, based on technological solutions that enhance the customer experience.
Hotels as an asset-based investment class
The multitude of concepts and business models has been attracting institutional investors, who mainly view leisure products as a driver of tourism activity and economic recovery. The expansion of activity to urban and second-tier destinations of high cultural interest has shown strong recovery rates. Investment in the hospitality sector has proven to be a value-protection solution against inflation, benefitting from operational returns that are leveraged by the same inflation and the long-term resilience of the sector. Investors appear willing to pay premiums for projects aligned with ESG policies.
Sale of
apartments
NR. UNIT SOLD
AVERAGE ABSORPTION TIME
AVERAGE PRICE
AVERAGE DISCOUNT & ADJUSTMENT RATE
NEW
1,860
(-24%)
TOTAL
8,300
6,650/sq.m
(+5%)
4,550/sq.m
-2%
-7%
11 months
6 months
LISBON
1,680
(-32%)
5,000
(-17%)
4,040/sq.m
(-3%)
3,060/sq.m
(-6%)
NEw
-5%
PORTO
Valores acumulados a junho (comparação homóloga com média ponderada dos dois primeiros trimestres de 2022).
Source: SIR / Confidencial Imobiliário (SIR Ci)
16
New and used
Residential projects licensing
Against the background of rising interest rates and the consequent deterioration in spending power, 2023 saw a downturn in buying and selling activity in the residential market. According to information from the Residential Information System/Confidencial Imobiliário (SIR Ci), the past year recorded a drop of 20% in the number of apartments sold in Portugal, to 85,350 properties. However, the average price increased by 5%, reaching €2,490/sq.m. This trend reflected the ongoing imbalance between supply and demand, particularly due to the scarcity of new developments targeted at the mid-end housing segment.
Source: Pipeline Imobiliário Ci
Although €21.7 billion in mortgage lending was granted to individuals in 2023, according to the Bank of Portugal, representing the highest value in the last two decades, a survey of the banks carried out by the Portuguese central bank showed a decrease in the demand for credit by individuals over the past year, which eased particularly in the second half.
18
Percentages correspond to the year-on-year variation of the indicators.
17
Bank of Portugal Credit Market Survey (publications from April 2023 to January 2024 in relation to the previous quarter).
Sales price of apartments
In Lisbon, the average sales price of apartments (both new and used) stabilised at €4,550/sq.m, with a 5% increase for new properties. For both new and used properties, the Historical Centre remained the most sought-after, reaching sales prices of €5,590/sq.m, followed by the Traditional Zone (€5,400/sq.m). The most significant downward adjustment occurred in the Riverfront area (-15%), dropping to €4,510/sq.m. The average discount and adjustment rate increased to 7%, with the average take-up time falling to six months. In terms of future supply, Lisbon recorded a decline in the volume of licensed residential projects, coupled with an 8% increase in projects submitted for licensing.
Source: Cushman & Wakefield; SIR Ci
Price of apartments
19
The difference between the final sales price and the initial price offered for the property.
20
Porto showed an unusual trend that differed from the national landscape, as well as from Lisbon, with the sale prices of apartments decreasing by 6%, to €3,060/sq.m, although less pronounced (-3%) among new properties. Foz continued to command the highest prices, standing at €3,860/sq.m, while the Historic Centre was the only area that suffered a year-on-year decrease (-13%), dropping to €3,460/sq.m. The average discount and adjustment rate increased to 7%, with the average take-up time decreasing, falling to six months. In terms of future supply, the city recorded a decrease of 9% in the volume of licensed projects and a substantial increase of 54% in projects submitted for licensing.
Novos e usados
Diferença entre o preço final de venda e o valor inicial de oferta do imóvel
Rental
Market
NR. UNITS SOLD
AVERAGE MONTHLY CONTRACTED RENT
130
(-35%)
2,380
(-34%)
€24.3/sq.m
(+18%)
€19.0/sq.m
(+23%)
-4%
3 months
2 months
100
(=)
460
€19.4/sq.m
(+26%)
€15.2/sq.m
-3%
Source: SIR Ci
In 2023, the imbalance between supply and demand remained in the private rental sector (PRS), according to SIR Ci. In parallel with the built-to-sell market, this contributed to a 38% decrease in the number of apartments leased nationwide, totalling 8,510 apartments. This decline was associated with a significant 27% increase in the average prices, to €14/sq.m/month. 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.
Em estabelecimentos de alojamento turístico
Em estabelecimentos hoteleiros
In Lisbon, rents increased to €19.0/sq.m (+23%), with new properties reaching €24.3/sq.m/month (+13%). The Historic Centre maintained its lead, despite experiencing the lowest year-on-year growth (+15%) in the city. In Porto, the average rental price increased by 26%, reaching €15.2/sq.m/month, with new apartments recording a more pronounced increase to €19.4/sq.m/month. Like Lisbon, the same area remained popular, namely Foz, although it recorded the lowest year-on-year growth (+5%) in rents. The discount and adjustment rates increased in both cities, with the average take-up time decreasing by one month.
Rental price of apartments
21
The student accommodation and CoLiving segments continue to suffer from a lack of supply, especially of purpose-built accommodation. In terms of private sector supply, three new units were completed last year, with a total of 1,030 new beds, with Xior Lumiar (Lisbon) standing out with 500 beds. The ratio of beds per student remained stable at 14%, with a slight increase in activity by private operators, who now represent around 40% of supply.
25,600
14%
39%
Student Accomodation
/ CoLiving
Total Supply (nr. of beds)
Private Operators
Provision Rate
(+7%)
22
Ratio between number of beds and displaced national and international students.
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), funded by the Recovery and Resilience Plan (RRP). In this context, the forecast of new supply by 2026 currently stands at 11,390 beds. Amongst future private supply, prominent examples include the Coletivo de Azúrem project (Guimarães) with 630 beds, in addition to the entry into the market of two The Social Hub, in Carcavelos (Lisbon) and Porto (the Bonjardim project).
Main private openings
Main private Pipeline
In the senior housing sector, the number of available beds continues to increase, reaching 104,700. However, the rate of new openings has not kept 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 a lack of quality supply. In 2023, the DomusVi group stands out with the opening of a 100-bed unit in the centre of Lisbon, as well as Portugal Senior Health Care (CoRe Capital), with 2 projects of 60 beds each. Looking ahead, over the next three years, another 330 new beds are expected from amongst the main private operators, with the largest project being undertaken by the DomusVi group.
104.700
Senior
Housing
Occupancy Rate
Source: GEP; INE; ACSS
24
Ratio between the number of beds and population aged 80 and over; 2022 estimated population (Source: INE).
25%
Equipment Rate
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 expected to worsen
Demand for student accommodation or co-living projects will continue to rise
The shortage of senior housing is set to intensify
The 'More Housing' programme failed to introduce measures to incentivise new developments for the mid-end housing segment. Demand will continue to far exceed supply, putting upward pressure on prices. The end of the Non-Habitual Residents tax break scheme may contribute to a drop in demand from the higher-end segments.
Excessive taxation and the inadequate legal framework continue to hinder the development of specific built-to-rent products for the mid-end segment, inevitably leading to further contraction and pushing rental prices upwards.
Demand for student accommodation and more exclusive co-living concepts from occupiers and investors is expected to keep increasing, with developers looking for ever larger and more attractive solutions that serve as valid alternatives to the traditional residential segment.
In the context of an ageing population, increased supply still falls a long way short of what is needed, encouraging the development of private assisted living homes, offering quality services for older adults. Nonetheless, the development of this segment could be impacted by the difficulty most Portuguese families face in affording high monthly rates and, on the other hand, hiring specialised staff, especially in locations outside large urban centres.
The residential rental market will continue to contract
Development &
Living
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 in 2023 of 46%, with a total transaction volume of €460 million spread over more than 40 deals. Amongst the larger-sized deals, noteworthy examples include Bondstone's purchase of Quinta do Morgadinho (Loulé) from Interfundos for over €50 million and Grupo M Caetano's purchase of a plot of land on Rua do Ouro (Porto) from EDP for an estimated price of €45 million.
27
Information based on internal and public sources.
Foto Quinta do Morgadinho: jornaldoalgarve.pt
Aquisições de edifícios para reabilitação ou terrenos para promoção
Real estate projects under licensing
In terms of future supply, during last year over 8 million sq.m, distributed across around 21,900 projects were submitted for licensing in mainland Portugal. This reflects year-on-year increases of 11% and 4%, respectively. In terms of area, most of the projects submitted for licensing are for residential use (74%) and new construction (77%). The dominance of new development varied depending on the sector, ranging from 57% to 87% in the hospitality and residential sectors, respectively.
Baseada em fontes internas e públicas
Development:
Real estate projects licensing
In 2023, the licensing of real estate projects in Lisbon followed an asymmetric trend when compared to the same period last year, with a 7% increase in projects submitted for licensing and a decline, to less than half of the total area, of licensed projects. Concerning the projects submitted for licensing, despite the prevalence of the residential sector, representing 201,000 sq.m, the office sector boasted the highest year-on-year increase (+55%), reaching 77,000 sq.m. Amongst the licensed projects, the residential sector represented over half of the total area with 230,000 sq.m., and, by contrast, the office sector suffered from the most significant decline (-92%), to 5,500 sq.m. Most of the licensed area (71%) was for refurbishment as opposed to new construction.
360,500 sq.m
435,700 sq.m
(-56%)
LICENSED
Submited for Licensing
Licensed real estate projects
Próximos 3 anos
Construction costs remained stable, with average costs (excluding VAT) in Lisbon ranging from €1,450/sq.m to over €1,900/sq.m, for new construction, and between €1,700/sq.m and above €2,100/sq.m for refurbishment projects.
Construction costs by segment
Porto also showed an unlikely trend in the licensing of construction area. However, in Porto, the most significant change occurred among projects submitted for licensing (+64%), with licensed projects remaining more moderate. With regard to projects submitted, the residential sector remained the most popular, covering 215,000 sq.m, with the area allocated to offices increasing substantially to 45,000 sq.m. Regarding the licensed projects, the residential sector represented two-thirds of the total area, with a balance between the area for new development and refurbishment.
351,700 sq.m
(+64%)
329,900 sq.m
(-7%)
Construction costs in Porto also remained stable, with prices (excluding VAT) ranging from €1,400/sq.m to over €1,800/sq.m for new construction and between €1,500/sq.m and above €1,900/sq.m for refurbishment projects.
Urban SIMPLEX is met with caution
The implementation of Urban SIMPLEX and how it will be put into practice remain uncertain. The new law, set to revolutionise the licensing process as it brings reform to urban procedures and planning, has naturally been met with some caution, and will involve a period of adaptation and review for all involved parties - town councils, developers, planners, legal professionals and banks – a process that is not expected to be drawn out.
The need to promote housing for the mid-end segment will remain a top priority. The lack of supply will continue to be affected by high taxation, lack of incentives for new construction, high construction costs and interest rates for families, all of which are expected to persist in the coming months. Demand for housing in the high-end and luxury segments may be impacted by the end of tax benefits for Non-Habitual Residents.
Shortage of housing development
The increasing return to offices and the demand for more modern and environmentally and energy-efficient offices will fuel development in this sector and the potential creation of new business centres. Simultaneously, older buildings in more traditional and touristic areas will become available for conversion into housing or other types of accommodation.
Emergence of a new generation of offices
Commercial real estate
Investment
Commercial real estate investment activity slowed in 2023, to a total volume of €1,690 million, reflecting a significant year-on-year drop of 44%, albeit still in line with other European markets. With 95 transactions, slightly below the historical peak of the last decade (reached in 2022), the year was marked by a prevalence of smaller deals, with the average deal size falling to €18 million. Given the drop in foreign investment, domestic investors increased their market share to 33% of the total volume invested.
TOTAL VOLUME
Foreign Investment
RetaIl
€1,690 million
(-44%)
66%
38%
28
Institutional investment in completed and income-producing real estate properties.
Investment by semester
29
Investment by sector
Allocation of capital by sector showed that investors proved to be most interested in the retail and hospitality sectors, which respectively accounted for 38% and 37% of the total volume invested. In retail, of the total of €650 million invested, the two largest deals corresponded to LCN Capital Partners' purchase of the Amália project (a portfolio of 50 Pingo Doce and Continente supermarkets) from TREI for €140-150 million, and the purchase of a portfolio of 5 retail parks for around €100 million by First Retail Partners, a new Partners Group fund to be managed by Mitiska REIM. In hospitality, the €630 million invested was particularly influenced by Arrow's purchase of the Dom Pedro portfolio from Saviotti for €250 million. Other Assets followed suit, representing 10% of the total volume invested, including Live Nation's purchase of Ritmos & Blues, which includes Altice Arena, a large events venue, for around €50 million. The office sector only attracted 9% of the transaction volume at €150 million. In this segment, BNP Paribas REIM's purchase of the Pier III building from Períptero for €30-35 million stands out. Finally, the industrial and logistics market secured merely 5% of the amount invested, with the most noteworthy deal being Corum Asset Management's purchase of the Logifam building from the Vila Nova Group, in Vila Nova de Famalicão, for €26-28 million.
Main investment deals
Componente de imobiliário comercial
The current international economic context and interest rate environment have contributed to further year-on-year softening of prime yields, by between 25 and 75 basis points, in the main sectors of the commercial real estate market throughout 2023.
Nº de quartos dos hotéis transacionados (cerca de 85% da componente de imobiliário comercial, pois exclui campos de golfe).
Or €/key in hospitality. In case of a range in the “Value (M€)” column, the calculation of this indicator is based on the range’s average value.
Valor unitário por quarto (€/quarto)
30
Investimento institucional em produto imobiliário acabado e de rendimento
Prime
Yields
Current estimates indicate that investment in commercial real estate will pick up slightly across the sector in the second half of 2024 with around €1,800 million in deals currently in various stages of negotiation and expected to be concluded this year. In terms of distribution by asset class, a significant recovery is expected in the office sector, comprising 47% of the total volume, followed by hospitality with 27%. These estimates could include up to an additional €1,100 million of deals currently pending (but that may be concluded by the end of the year), as well as the usual off-market operations. Therefore, while prime yields may still soften some more during the early part of the year, by the end of 2024, some year-on-year stability is expected, possibly with a reduction in yields and a consequent increase in value.
OUTLOOK
Low activity marks the first half of the year, with recovery in sight for the second half of the year, as...
A gradual resurgence of large international investors is expected, but...
There will be some relief when it comes to accessing bank debt and refinancing...
The differential between yields on income-producing real estate and the so-called "risk-free assets" stabilises; and Disparity in price expectations between sellers and buyers narrows.
Prime yields may still shift upwards in the early part of the year, but by the end of 2024, some year-on-year stability is expected. In the most sought-after categories, there may even be a reduction in yields and a consequent increase in value (also supported by specific increases in prime rents for the best-performing assets). New or refurbished assets, with excellent ESG credentials, are more resilient.
...local open-ended funds, pension funds, and family offices (involving smaller deals, without recourse to debt) still have a role to play.
More moderate financing rates. Owners are reasonably capitalised and banks have been managing their risk portfolios effectively.
Capital values may increase in the most resilient asset types...
Commercial real estate certified buildings
Given the more demanding criteria and increasingly stringent legislation, throughout 2023, the market's predominant focus on sustainable buildings prevailed, as well as the inclusion of Environmental, Social and Governance (ESG) criteria in the decision-making processes. In light of the current landscape, there is mounting evidence that tenants and investors are more inclined to pay a green premium for sustainable assets. Furthermore, market evidence suggests that companies, in particular, larger international ones, have internal requirements not to occupy or acquire spaces that do not irrefutably comply with ESG criteria, thus penalising all others with the so-called brown discount.
Source: BREEAM, LEED and WELL
Consequently, obtaining certificates such as the Building Research Establishment Environmental Assessment Method (BREEAM), Leadership in Energy and Environmental Design (LEED) and WELL certification is rapidly taking precedence in Portugal.
31
New certification or renewal; only includes the projects listed by the respective entities (some projects are anonymous and therefore not published).
In terms of certification, namely BREEAM and LEED, there was a slight year-on-year increase in the number of buildings certified last year, mostly in the office and retail sectors. Almost all BREEAM certification was obtained for buildings in use, in contrast to LEED certification, in which new construction/refurbishment dominated. In terms of future certification, data for which is only available for LEED, currently around 70 buildings are registered as candidates.
Source: BREEAM and LEED
In terms of the WELL certification, which focuses on the use of the building and the well-being of its occupants, in 2023, the first two WELL certifications were issued in Portugal, both in office buildings, namely Nestlé's headquarters (Linda-a-Velha) and Sonae's Tech Hub (Maia). This sector continues to lead future certification, with approximately 50 projects registered.
33
32
Certification requests submitted
Mitigation and adjustment to climate change
Integration of the value chain into corporate activities and reporting
Growing focus on biodiversity and natural capital
Climate change is worsening and its perceived risks are rising. Reducing energy consumption is, and will remain, one of the market's major challenges. The new Energy Performance of Buildings Directive (EPBD), pending final approval by the European Council, likely to occur in 2024, will bring new requirements and challenges to the market, given the energy obsolescence of much of the building stock. Thus, currently, the trend is towards the renovation and repositioning of existing buildings through significant refurbishment works, allowing them to be placed back on the market whilst also obtaining more higher prices. Given that investment is risk-averse, and buildings are a critical element in resilience to the impacts of climate change and in protecting the population, there is growing concern about assessing these climate risks and in the definition and implementation of mitigation measures to better protect our heritage, the activity carried out there and its users.
The Sustainable Finance Disclosures Regulation (SFDR) is changing the way investments are made in the real estate market. Major investors and financiers, such as banks, have begun to integrate ESG performance indicators into their assessments as they are now required to report on the sustainability of their assets and investments. However, those unable to comply with these conditions or to demonstrate their commitment, are thus excluded or left at a disadvantage. These ESG-focused regulatory and legislative changes have been a phenomenal game changer, resulting in boosting requirements concerning building certification and the need to collect, manage, and analyse information that reflects building performance. In addition, it also includes the assessment of property alignment according to European Taxonomy, which recently added a new circular economy goal.
Last year, the Council and the European Parliament reached a provisional agreement on the Corporate Sustainability Due Diligence Directive (CSDDD), a directive that aims to strengthen the protection of the environment and human rights, not only in the EU, but worldwide. It establishes obligations for large companies concerning the negative impacts, at both environmental and social level, of their own operations and of their subsidiaries, as well as of those carried out by their business partners, both upstream and downstream. The commercial complexity of the market will require a substantial effort to assess, align, and constantly monitor suppliers, with increasing scrutiny from stakeholders.
Preservation has become a mainstream issue and there are several drivers that are reinforcing this trend: the scope of the Taskforce on Nature-related Financial Disclosures (TNFD) was defined and published, essentially based on the Task Force on Climate-related Financial Disclosures (TCFD), centred on reporting on these matters. At COP 25, more than 190 countries committed to restoring and conserving 30% of the Earth's ecosystems by 2030; at COP 28, the EU launched several initiatives to turn the tide on deforestation in value chains; and, finally, in January of this year, Portuguese legislation was published with respect to the voluntary carbon market, which provides benefits for its protection. These measures are crucial to mitigate, and increase resilience to, climate change. The call for the private sector to contribute to a positive impact on biodiversity and natural capital, aiming for carbon neutrality, is clear. For the real estate market, this means that more and more property owners, in particular portfolio investors, are increasingly adopting not only strategies to measure and report on their building emissions, but they are also beginning to invest in strategies to offset emissions on a broader scale, namely through land acquisition and carbon offset initiatives.
Reporting of non-financial indicators and redirecting investment to sustainable activities
Although this market has been rapidly gaining momentum and major investors are already integrating sustainability and ESG criteria concepts into their business-as-usual, there is still a superficial awareness of the real impact and changes underway. Below is a summary of our view of the ESG trends in the real estate sector:
For further information or additional copies of this or other reports, please contact: MARKETING & COMUNICATION 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 nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 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), sustainability and more. To learn more, visit www.cushmanwakefield.com © 2024 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 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
