Lisbon’s office market – Competitive while offering attractive yields because of high demand, high take-up and low vacancy rates

Text: Chris Graeme; Photos: Color Shop by Joaquim Morgado

According to the latest Savills annual analysis, the office market in Lisbon recorded exceptional performances between January and November 2024, reaching new highs.

In Lisbon, total occupancy during this period was 193,188m2, the second highest figure ever recorded in the analysed period, surpassed only by 2022.

Frederico Leitão de Sousa, Head of Corporate Solutions (Office Market) for Savills explained the Lisbon office market to members and guests of the American Club of Lisbon last week at its latest Real Estate Meetup event held at Lisbon’s Grémio Literário.

Lisbon’s office market has six zones and only two are not located in the city centre and these two were created this century.

This resulted in a lot of large triple AAA tenants moving to these city centre office areas because of the generous floor plans, the quality of the buildings, and energy certifications that most of the other buildings in the city centre didn’t have.

From January to November 2024, the Lisbon office market recorded a total occupancy of 193,188m2, representing the second highest volume of take-up for this period.

In the Lisbon market, the area occupied until November 2024 showed a very significant growth of 120% compared to the same period in 2023 and was 25% above the average of the last five years.

During this period, 155 operations were carried out, an increase of 16% on the previous year.

Among the locations with the highest area absorption, Parque das Nações stood out with 36% of the total volume, spread over 42 operations. This was followed by the New Office Zone, which accounted for 23 per cent of the volume (21 transactions), and the CBD, with 15 per cent (31 transactions).

Financial Services led the way in terms of sectors of activity, with a total take-up volume of 55,330m2 to November, which corresponds to 29% of the total GLA occupied in the Lisbon office market. The TMT & Utilities (18%) and Other Services (15%) sectors followed.

Portugal has a total office stock of around 4.5 million premises, which is a small market compared to Spain or France.

“In terms of total take-up we have been growing a lot over the past five years, particularly Lisbon and Porto, mainly down to three drivers: Brexit – American companies used to make a bridge through the UK to the rest of European after Brexit some chose to relocate to Portugal.

The second driver was the War in Ukraine “because some companies located in Ukraine and Poland moved their services and call centres to Portugal and other cities in Spain, Italy and Greece”, for security reasons, he said.

As for the vacancy rate, which stands at around 15-20% in cities like Washington and Chicago in the US; in Portugal, however, with vacancy rates of around 7%-8% the yields are good for investors with higher rents because of the lack of good quality modern office space in Lisbon.

Year-on-Year prime yields are rising, but with a continued competitive gap between Lisbon and Madrid (€37 per m2) and Lisbon and Paris (Nearly €80 per m2) in Lisbon’s favour. “That’s why a lot of people say that Portugal is the India of Europe because we have a lot of cheap talent and is one of the reasons why companies chose Portugal.”

Frederico Leitão de Sousa says that strong take-up rates in Lisbon underscore the city’s great potential and attractiveness as a key-player market in Europe.

It is why the Lisbon office market stands out as one of the most competitive in Europe as more and more international companies choose the Portuguese capital.

In addition, the entry of new office projects that meet the highest standards of AAA tenants has “reinforced the attractiveness and resilience of our market”.

“We currently have more than 20 projects in the pipeline, which will total around 245,000m2 by 2026, more than 40% of which are already pre-let, which highlights the lack of quality office space available. We anticipate a very promising 2025, with significant operations.”