Real Estate: 2021 sees gradual recovery says C&W

Despite the effects of the pandemic, Portugal’s real estate market showed resilience last year and this year will see a gradual return to normality.

2020 was the third best year on record for the sector bringing in investment worth €2.7Bn. This year, despite starting off somewhat sluggish, will nevertheless see a gradual return to normality.
This is according to real estate consultants Cushman & Wakefield which says that the residential market should experience a “moderate fall” in prices.
C&W says €2.7Bn worth of property across the different segments (residential, offices, retail units, logistical units, hotels) were transacted in 2020, a 13% fall on 2019 according to Marketbeat Portugal Spring 2021 which was presented on Tuesday.
More than half of this amount was down to three big ticket deals: the sale of 50% of the Sonae Sierra joint-venture, the sale of Lagoas Park and the sale of the Hotéis Real chain.
“2020 was a very positive year for the investment market. It was the third best year ever. Even during lockdown we continued to attract the attention of the investors,” says Paulo Sarmento, who heads Cushman’s Investment department.
Looking at these numbers, the sector is optimistic for 2021. Although the year began will less dynamism, there has already been some €1.3Bn in transactions,” explains Paulo Sarmento.
“This year will see a gradual return which will be at different rates for different segments but there is high levels of liquidity and there will a greater preference for secure assets,” he says.

RETAIL

In retail, sales fell 2.4% nationally in 2020, but sales from shopping centres plummeted 34%. For the coming months it is expected that online shopping will continue to compete with physical shops, “Forcing a rethink in the retailer relationship with the consumer”.
Retailers are faced with “high financial costs and overheads” even taking the support from the government and banks in place. There will be a downwards pressure on the price of retail units.
“The tourism-dependent segments were the most affected, while convenience and neighbourhood retail showed more resilience,” says C&W Executive Partner Eric van Leuven.
“Retailers were forced to further invest in an omni-channel presence, particularly e-commerce. Consequently, the number of new store openings, according to our C&W non-random sample, decreased by 50% to 430 units while prime yields increased to 5.25% in shopping centres and 4.25% in high street retail, reflecting a softening by between 10 and 50 basis points compared with 2019.”
C&W points out that in the retail arena, the highlight of 2020 was the sale of the stores of the Liberdade 203 project.

HOTELS

In the hotels segment, 46 new hotels opened in 2020 with a total of 2,400 rooms with 200 projects expected in the future. For this sector Cushman expects an increase in work/co-working space adaptations and a rise in potential insolvencies, despite the Government and banking system support mechanisms. Demand in 2021 will be only 50% to 60% of that seen in 2019. In terms of hotel projects, C&W was involved in the consulting side of the sale of the Stay Hotel Lisboa Aeroporto.

OFFICES

Cushman & Wakefield reports that the office market entered the pandemic in quite a robust shape, with low vacancy rates and a substantial pipeline in response to the lack of quality supply. Nevertheless, with occupiers taking a generalised wait-and-see approach, most deals were put on hold, except transactions already at an advanced stage of negotiation. Consequently, total take-up dropped by 29% in Lisbon and 17% in Porto; and vacancy rates increased to 4.9% and 8.0% respectively. Working from home and its impact on the workplace strategy start to feature high on tenants’ agenda, as they analyse their future space needs.
“Among our most notable investment deals in the office sector, we acted on the sale of the Cuatrecasas headquarters building in Marquês de Pombal and the acquisition of the Expo Tower building in Parque das Nações,” says Executive Partner Eric van Leuven.
In terms of prime yields, these increased slightly, to 4.10% in offices. Eric van Leuven points out that the office market entered the pandemic quite robust, with low vacancy rates and a substantial pipeline in response to the lack of quality supply. Nevertheless, with occupiers taking a generalised wait-and-see approach, most deals were put on hold, except transactions already at an advanced stage of negotiation. Consequently, total take-up dropped by 29% in Lisbon and 17% in Porto; and vacancy rates increased to 4.9% and 8.0% respectively. Working from home and its impact on the workplace strategy start to feature high on tenants’ agenda, as they analyse their future space needs. Prime yields increased slightly, to 4.10% in offices.

LOGISTICS

The Logistics sector has been the clear winner since the start of the pandemic, enjoying increased demand due to the booming on-line sales from e-commerce, contributing to increasing demand for spaces adapted to its operation while yields in industrial and logistics remained stable at 6.00%.
Take-up more than doubled, to 335,300m2, though most of this concerns owner occupation deals. “The greater interest in the sector, along with the shortage of quality supply, contributed to the development of new speculative projects, such as Merlin’s Lisbon North Logistics Platform, the first 45,000 m² warehouse of which is under construction,” says van Leuven.

2020 – LOOKING BACK

Looking back on 2020, Eric van Leuven points out that considering the immense challenges faced during 2020, Cushman & Wakefield’s activity in Portugal achieved very positive results, only slightly below 2018 and 2019, which were the best ever.
“All departments recorded good levels of turnover,” says the executive partner at C&W, which was once again distinguished by Euromoney as the ‘Best Real Estate Consultant’ overall in Portugal, as well as best consultant in terms of agency, property valuation and research.
Van Leuven explains that overall, Portugal’s market fundamentals remained intact, with continued interest from investors supporting substantial allocations to real estate and high levels of liquidity.
“Despite the 13% drop in commercial real estate investment in 2020, (a lesser reduction than other European countries) to €2.8 billion, this was the third-best year on record. To this three major deals contributed, which accounted for 55% of this total transaction volume, namely: the sale of 50% of the Sierra Prime joint venture for circa €800 million (Portuguese assets); Lagoas Park for €421 million; and Real hotel’s portfolio for €300 million.

2021 – LOOKING FORWARD

Cushman & Wakefield says the outlook for the rest of 2021 is highly dependent on the evolution of the pandemic and the success of the vaccination programmes.
“In the first half of the year, and particularly over Q1, given the current lockdown restrictions, deals will continue to be closed at a slower pace, with others being further delayed, which will negatively impact take-up volumes,” concludes van Leuven.