Property investment: Why Portugal continues to trend for overseas private and institutional investors

 In Commercial Real Estate, Funds, Logistics, Luxury property, News, Offices, Private Equity, Property

Text: Chris Graeme; Photos: Joaquim Morgado

You’re new in town, perhaps an asset manager or investor who wants to fact find the Portuguese commercial property market which you’ve heard is booming; or maybe you’re a developer looking to cash in on a sustainable investment in a luxury residential development. You haven’t got much time to do the endless round of meetings with possible local partners, but want to get an overall feel of the market first and make some useful contacts. Where do you start?

Well, you couldn’t have done better than to attend the IXth Real Estate Meet-Up organised by the prestigious American Club of Lisbon at the equally prestigious Lisbon literary club Grémio Literário held this week.

Attended by around 200 movers and shakers from the real estate, asset management, fund and banking world, you got the whole panorama of Portugal’s property market in a nutshell presentation by four people in the know: João Bugalho, CCO of Arrow Global Portugal, Francisco Sottomayor, CEO of Norfin, André David Nunes, CIO of Norfin, Tiago Eiró, CEO of Eastbanc Portugal, and Ricardo Reis, Real Estate Leader at Deloitte.

It was here, overlooked by paintings, photos and engravings of 19th century literary and political grandees, that you learnt that despite Portugal’s still obvious top-heavy red tape, high and complicated taxes and constantly changing investment visa systems that there are good deals to be had, and very often at a cheaper rate than many other European competing investment destinations.

Portugal – still trending

Portugal has been em vogue since the Great Depression when real estate asset restructuring funds, overseas developers, and small property investors began to trickle in from 2015 looking for great deals. That trickle became a flood until the pandemic in 2019, partly on the back of Portugal’s hugely successful Golden Visa and Non-Habitual Resident schemes, and although the market has calmed down somewhat from those dizzying heights, the country is still trending and looks to continue to do so for the foreseeable future.

Ricardo Reis (Deloitte) set the tone of two contrasting situations: the changes to the Golden Visa and NHR schemes with the scrapping of the residential real estate investment option on the one hand, and the stalling of the commercial real estate sector as a result of increased interest rates in 2023 and its gradual recovery this year, on the other.

Property prices have not gone down with the latest survey showing that the outlook is optimistic with the expectation that interest rates will continue to come down and liquidity will once again flow as cheaper capital becomes available for investors.

The real estate market in Portugal

Giving an overview of the real estate market, André David Nunes, CIO of Norfin, said there was a shortage of supply in the residential market with a 50% drop on the supply that existed in 2007-8.

“We had a lot of international buyers in the residential market in the post-troika years, and this clearly had an effect on crowding out the mid-income Portuguese families — a phenomena that has happened all over Europe – but has pushed up prices in prime city locations with a ripple effect on the outskirts of the large cities”.

And when referring to the residential market, you have to mention the financial market, and for overseas investors Portugal bank financing is quite cheap compared to other markets. Compared to other southern European countries, it is interesting that Portugal has one of the highest rates of home ownership (around 70%). It means buyers can get a 30-year mortgage loan with a typical average spread of 1-2% whereas in the UK it can be up to 5%, and nearly 3% in the US, for example.

CAPEX rates on financing (capital expenditure) is also very competitive in Portugal compared to other European countries. If you are a developer and make down payments you don’t have to provide a guarantee against those down payments, there is no legal limitation on what you do with that downpayment or the amount.

In Portugal a developer, particularly in the luxury segment, can easily get up to 60% credit leverage of the value of the property.

“It is fair to say that at the peak of the last financial crisis it was difficult to finance projects, but now it is easier to get leverage at competitive rates to support the development,” said Francisco Sottomayor, CEO of Norfin.

US relocators No.1 overseas buyers in Lisbon and Algarve resorts

Housing prices have been going up constantly over the past few years because of demand from international buyers and ready and cheap financing, all of which has had an effect on reducing housing supply at affordable prices.

“I would say that we have seen a slowdown over the past year in transactions, although the data for Q1 of 2024 is more positive than Q4 of 2023, with an increased volume of sales of roughly 20% with prices holding up well”, says Francisco.

Q1 showed a significant increase in bank mortgages for individuals, while in 2023 properties in the top end of the market continued to sell well with prices rising accordingly.

“There has been an increase in transactions, prices and mortgage applications, particularly in the upper market segments, with Americans being the number two buyers in Lisbon after the Portuguese. The Americans are also the number one overseas buyers in the Barlavento region of the Algarve in residential real estate resorts.

For example, funds from Arrow Global – which controls Norfin – invested €400 million for the Palmares Ocean Living & Golf complex in Lagos which includes 200 hectares of land assets located between the Alvor estuary and Lagos, and with United airlines announcing direct flights to Faro for next year, interest from Americans will only likely grow.

Leisure real estate

Investment in leisure assets in 2023 was a fraction of what it had been in previous years, standing at €1.6-1.7Bn in transactions, although investment in hospitality has been an area of major growth. (€570 million of which 83% was from overseas investment).

“I think that Arrow and Norfin had a considerable role in that investment, accounting for around 30% of the market”, said Francisco Sottomayor.


When the US office market “traumatised” American investors” after being impacted by Covid-19, high vacancy rates, diminished demand, and a lack of modern supply and excess of dated, functionally obsolete office buildings, and an undersupply of offices that satisfy tenants’ changing needs meant that by the end of 2023 Lisbon ’s office market caught the virus too, and according to Savills Portugal was down 59% on 2022 while Porto was down 14%.

“The main difference that we have in Portugal in the office sector is that we clearly haven’t had the bloodbath we saw in the US and Anglo-Saxon countries, all very affected by the rising interest rates”,explains Francisco.

“In Portugal, the lack of supply on the one hand, and robust demand on the other, has meant that the office sector did not suffer as much as the US and Northern European countries”.

However, more recently there has been an increase in rents, demand and take-up in the market which can be surprising given the quality of the buildings in the Lisbon area are not always that good.

If the buildings are Grade A, and have excellent transport links, then the demand is high, resulting in prime rents going up. (4% year-on-year in 2023)

For example, Norfin is involved in the largest new office construction project in the Lisbon area, Oriente Green Campus, with 70% of the area pre-leased.

“Our impression for the centre of cites where companies want to be located is that they want offices that employees want to go to, that make a statement of what the company is all about”, Francisco explains.

“The sector with offices on the outskirts of cities might suffer because the buildings are not Grade A”; meaning having cutting-edge technology and leisure facilities for staff in what are so-called smart offices that provide a sustainable and comfortable working environment in terms of ambient conditioning, lighting, and division of spaces for meetings, brain storming areas, static, flexible and ‘hot spot’ work stations, recreation and rest areas, electric vehicle car charing points, and even bike parks, not to mention surrounding green areas. One example in central Lisbon is the new office of Savills Portugal which is the last word on what a modern office should be both for employees and business visitors.

Logistics market

Portugal’s logistics market has also done well in recent years, partly off the back of increased online purchases that soared during the Covid-19 pandemic, relatively cheap credit, and the ‘last mile’ trend to locate logistics warehouse closer to consumer markets in urban centres.

André Nunes says that Norfin has seen some of that effect in the investment volumes in Portugal. “I would say as an asset class it is not very large and has not been the main focus of real estate investors” in the country. However there is demand and it is growing.

Moreover, rents have picked up in this asset class and there is a lot of pent up demand waiting to serve an undersupplied sector in Portugal that has been “holding up quite well”.

Norfin says that regarding commercial real estate in Portugal there is a “flight to quality” while low quality assets, meaning technologically, architecturally and environmentally obsolete premises, are now struggling.

However, Norfin concludes that there is a clear need for volume in the residential market, particularly in terms of affordable housing for the Portuguese middle classes. The new government had announced policies to facilitate this demand, but it remains to be seen how successful they will be in enticing investors who have, until now, stuck to safer luxury residential assets.

About Arrow Group:

Founded in 2005, this UK-based asset management group is present in five countries and currently has around €70Bn worth of assets under management and employs 3,000 professionals. It recently entered the Spanish market. In Portugal it has different businesses: White Star, the largest Non-Performing Loan (NPL) operator in Portugal, Norfin, Restart Capital (Corporate restructuring) and Details, a hospitality, hotels and leisure assets management company.

About Norfin:

Founded 25 years ago in 1999 by Filipe de Botton, Alexandre Relvas and João Brion Sanches, Norfin is a regulated real estate asset management company that today is a reference in real estate asset and investment management, managing around €2.1Bn of assets in funds and 13 special purpose vehicle companies of national and international institutional capital with a wide diversity of profiles and strategies. Since 2018 it has been part of the Arrow Group and continues to invest in Portugal in 19 projects in different segments (1.2 million m2), particularly hotels and hotel resorts. It manages both regulated funds and non-regulated vehicles. CEO Francisco Sottomayor is the President the Portuguese Association of Residential Tourism and Resorts. André David Nunes is the CIO of Norfin and Arrow Global Portugal.

Norfin has been involved in all the real estate segments throughout its history — residential, offices, logistics, hospitality, and retail and plays an important role in development projects, working with international investors that are typically seeking high risk and high return projects. It also has a mix of yielding assets including hospitality, residential tourism developments, offices and logistics.

The idea for Norfin started back in 1995 when João Brion Sanches went to five institutional investors and asked them to invest a few billion each. For a long time he invested in closed funds — which only issue shares once — and was always clever enough to understand where the investment opportunities lay.

“To be significant in a small market like Portugal you have to spread your investments in a lot of sectors and projects and that idea has always been in our DNA”, says Francisco Sottomayor, CEO of Norfin, adding you need to have strategies of investing across sectors in different asset classes, have a lot of different clients, look at opportunities and try to understand where they are.”

On Monday: ‘Anthony Lanier: The Man with the Midas Touch – How the US founder of developer Eastbanc, which transformed Georgetown near Washington, has successfully worked his magic on Lisbon’s Principe Real district.