€3Bn in property investment for 2021
Portugal’s real estate sector can expect around €3Bn of investment in 2021 according to the real estate property consultants CBRE.
The investment is driven by a robust pipeline of supply, the positive development of national players’ capacity to invest, and from a number of mergers and acquisitions which are expected this year.
The upbeat outlook was outlined by CBRE on Thursday during a digital online event ‘The Next Normal: Reset to Change’.
For the first time, the 2-hour event was held in a 100% digital format and had over 1100 viewings who heard 15 guest speakers who were the most relevant players in each one of the various areas covered: Investment, Residential, Hotels, Offices, Logistics and Trade.
Francisco Horta de Costa, Managing Director of the consultants in Portugal, said that despite the impact of the pandemic, overseas and national interest in the real estate market in Portugal remains high within a contest of low interest rates and high capital liquidity worldwide.
Portugal, he says, continues to show strong real estate foundations, namely a buoyant take-up market and a scarcity of product. This demand and reduced supply, coupled with investors with ‘cash to splash’ means the market is well placed for a rapid bounce-back as soon a countries begin lifting business and travel restrictions.
From among the many trends presented, CBRE Portugal says that the impact of the pandemic led to a sharp fall in the economy, and Covid-19 will continue to limit the rate of growth in the short term.
But forecasts show that Portugal’s GDP should be back to where it was in 2019 by 2022.
The consultants expect that the volume of investment in real estate will again be significant in 2021. On the one hand, there is robust offer in the pipeline: at the start of the year there was €2Bn worth of property for sale.
On the other hand, Portugal is seen as ripe for investment by the international investment community, while at a national level, very positive developments are noted from local players.
The turnover of investment will also be leveraged by expected acquisitions and mergers involving real estate investment companies.
After registering the third highest investment in a decade in 2020, there are expectations that the market will again hit a €3Bn high in 2021.
The sector will continue to show resilience with strong demand holding up. However, the new reality for companies will mean working spaces will need to be redesigned.
The pandemic had led to the adoption of working from home via telework, but nevertheless, a reduction in office area is not expected. Instead, a hybrid work environment will come into play, with companies converting part of their office space which had been used for conventional work into spaces to encourage creativity, integrating services and activities aimed at staff.
CBRE says that different shopping formats will recover at different rates, while online shopping will continue to grow.
Shopping centres will take a severe hit in the first quarter of 2021 thanks to the second government decreed general lockdown but should see a gradual uptick in demand from the spring.
Retail parks are suffering a lesser falloff in demand, with some with some activities within them having seen better results than seen in 2019, supermarkets being one such sub-segment, DIY, home improvements and gardening centres being another, and also consumer electronics stores.
High street shopping in prime areas will continue to suffer until lockdowns are over, and tourists can return to Portugal, but nevertheless, it will be a timid recovery over the summer.
In the case of Lisbon’s historic city centre, and also that of Porto, both of which rely heavily on tourism, a more significant recovery will happen in 2022, by which time a relevant number of flights will have recovered.
Speculative projects are on the rise, but yields have increased close to urban centres. Available logistics spaces will continue to be limited throughout 2021. Nevertheless, current demand is fairly high, so the expected take-up rate could reach record levels, as a result of developing made-to-measure warehouse spaces to meet occupant requirements, and pre-rental contracts on speculative building projects that will finally begin to come on line.
The growth of online shopping is stimulating demand from ‘last mile’ logistics operators which should lead to an increase in rents of 10%, to around €5/m2 per month close to large urban centres.
Hotels and leisure
In the tourism sector, CBRE confirms that the expansion plans of large hotel chains and investors will remain in city break and holiday destinations, but again different segments experiencing different recoveries.
Hotel performance will continue to be better in low population density areas because of the pandemic, with the Centre and Alentejo regions standing to gain, as was the case in 2020.
A change in habits and health requirements is also expected to lead to a diversification of products with demand for serviced apartments, boutique hotels, and second homes in residential tourism resorts expected to grow.
The housing market in Portugal should show resilience with housing projects for the rental market expected to kick-off in 2021.
The current lack of new build should ensure a certain stability in the residential market throughout 2021, although this might be accompanied by a slight decrease in prices, which will be more pronounced in the second-hand market.
Keeping the bank moratoria going until the economy and market recovers, is also important for the stability of the sector.
The tourism and second home residential segments, more dependant on the overseas market, are likely to continue to suffer, not just because of travel restrictions, but also because of uncertainties regarding the end of the property investment aspect of the Golden Visa programme along the Portuguese costal area and affecting Lisbon, Porto and the Algarve.
CBRE also highlights the long time it takes to get planning permission in Portugal, the need for more favourable changes to the tax and legal regimes for the sector (6% is often called for), and the continued need for the digitalisation of the industry, planning permission procedures and processes as a whole.