Portugal – the country where all real estate segment assets are sexy for investors – except affordable housing!

Portugal’s real estate market continues to attract investors conference finds

All of Portugal’s real estate segments, whether commercial (offices, shopping centres, logistics parks or retail units, or premium and luxury residential continue to be attractive to overseas investors – both small and large, a conference in Lisbon found on Friday.

Text: Chris Graeme; Photos: Diário Imobiliário.

At a conference organised by Diário Imobiliário ‘What are the most appetising and attractive real estate assets in which to invest’ which took place on Friday, April 24 at Lisbon’s annual property show SIL 2026 (Salão do Imobiliário de Portugal), the five panelists, Francisco Horta e Costa (CBRE), Pedro Vicente (Overseas), Patrícia Barão (DILS), José Botelho (OneMark Properties) and Fernanda Pedro (Diário Imobiliário) all agreed that overseas investor appetite had not significantly diminished over the past year despite an array of adverse geopolitical situations ranging from armed conflicts, trade wars, and an energy crisis.

In the debate moderated by the director of Diário Imobiliário, Fernanda Pedro, the question was how do you define what is an attractive asset in which to invest?

Kicking off the debate, Patrícia Barão, Partner at DILS Portugal, who heads the Residential department, informed that the residential property types that were most sold in Portugal were the one and two-bedroom appartments, responsible for 40% of all sales.

One and two-bedroom appartments “most sought after”

But when it came to the most sought after properties by small investors these were one-bedroom properties.

It should be remembered that in Portugal at least 94% of all small investor residential property transactions are from the Portuguese with only six percent reflecting overseas investors, mostly from Spain, Brazil, the US, UK, France and Germany).

It is these one and two-bedroom properties that are quickly sold when new apartment projects are launched.

“This is basically because in the housing market these types of properties have smaller areas and cheaper investment tickets and when buyers have savings in the bank that are not getting them a good return, can put the property on the rental market where the returns are more attractive.”

The Portuguese, she said, liked to own their own homes and would always see a property as a refuge for savings.

Many markets within a market

The Managing Director of CBRE, Francisco Horta e Costa reminded that the real estate market comprised many markets within a market and within these various markets or segments there is the perspective of investor developer who develops projects, the perspective of the rental investor who buys ready-built to rent out, and so that it depended on the investor profile as to what constitutes an attractive investment.

“We’re very active in the residential market, but the only thing we don’t do is sell houses”, he said by way of an example. “We sell the plots of land and DILS sells the properties built on them.”

In fact, there is such a lack of housing in Portugal that the majority of new developments in the median segment (aimed at the middle classes) is sold off plan.

A hostile rules, regulations and planning permission environment

However, despite the interest of investors (whether overseas or local, for premium or middle class) the elephant that has been in the room for the best part of two decades are the constraints that shackle the segment.

Portugal’s over complicated legal framework, interminable planning permission processes, urban planning issues, and lack of qualified labour continue to be stumbling blocks.

And urban regeneration, which focused on renovating and restoring existing properties, particularly in downtown historic city centers, now faced even more difficulties because government tax incentives had ended but overheads and raw material costs had increased.

Logistics parks and centres, one the least profitable of Portugal’s commercial real estate assets, was now an interesting market to invest in since real estate developers can buy a parcel of land and build warehousing and see attractive margins.

“We are building ever larger warehousing, renting them, and selling them on later to core investors”, said Mr. Horta e Costa.

Office and hotel market super attractive

And there is a very attractive dynamic in the office market too, where there is a healthy demand for new offices that are being built, and for those that will be built in two to three years time. “We’ve got more demand than the square metres that are available to buy to lease out in these developments, which shows lots of large companies want these high-quality buildings for office space which offer surprisingly good yields”, he said.

The hotels market too is buoyant, year-on-year, keeping pace with the increased demand from the booming tourism market despite the instabilities around the world.

“Tell me one sector where things aren’t going well.” They are going well, or very well. In fact, at the moment, I would say that practically all sectors are showing attractive indicators, and it’s not easy to choose a specific sector, but as I said at the beginning, I think if I asked you for one, I would say it’s the residential sector is doing the best”, the CBRE boss concluded.

Building what the market allows

Despite this energy, the panel of experts acknowledged structural limitations in responding to housing demand.

Pedro Vicente, CEO of Overseas (currently involved in branded residences in Lisbon), pinpointed the problem: “it’s not about building houses for the rich, but about building what the market allows.”

Rising construction costs, regulatory pressure, and the loss of financial capacity of families are driving the middle class away from buying housing. “We would like to build for the middle class, but that is no longer viable,” he added, describing a sector constrained between high costs and legal requirements.

And didn’t spare the horses when it came to the raw realities of the Portuguese housing market.

“From a real estate development perspective, I’d like to share a view that may not be the most pleasant or convenient, but rather to say that today we decide less about what we do in terms of the assets we work with than what the market allows us to do.

“What I mean by this is that we would like to work on build-to-rent projects, we would like to give younger generations the opportunity to start like my parents and even some grandparents did, who began their lives by renting a house.

We would like to collaborate in this process, but we can’t. We can’t because we run into the highly adverse rental market for investors and other associated reasons. We would like to build housing for the Portuguese middle class. Today, I don’t know if everyone is aware of this, but I’m almost certain that buying a house has become a tragedy. It’s completely inaccessible for a young person graduating from university earning €1,000 or €1,500 to buy a house”, Mr. Vicente said bluntly.

International investment

One thing was certain, International investment through funds or private family offices continue to represent a significant chunk of Portugal’s real estate market, particularly in segments such as logistics, student and senior residences, hotels and retail.

Portugal was continuing to benefit from a consolidated reputation as a secure and attractive destination for overseas capital.

But what about the high-end segments of the residential property market? The best person to explain the situation in the affluent, premium and luxury segments was inevitably José Cardoso Botelho, Chairman of OneMark Properties, who argued that the market should develop to cater for products aimed at HNWIs and UHNWIs which brought in greater value.

These were, in his opinion, the development projects that were the most “attractive” for real estate investors in the residential segment.

“Speaking as a developer, I’m clearly referring to the higher segments as being more appealing.

It’s an investment that takes a long time, including licensing, the cost of materials, and the need to expand the location. In fact, the small luxury or ultra-luxury segments are more attractive than the others. And I believe that in these three areas, in these three segments, there is currently demand; there are very good opportunities to explore”, said Mr. Botelho.

And expanded: “I would say that, for example, in the ultra-luxury or luxury segment, we also see many hotel brands wanting to come to Portugal, the higher segment, usually because all these hotel brands have the idea that, in that case, Lisbon, is a good sign that the market for luxury or ultra-luxury is much further along. As I said, when we see newspaper articles announcing a project, it’s almost always in the luxury class”, concluded the Chairman of OneMark Properties.

Photo line-up – L-R: Francisco Horta (CBRE) e Costa, Pedro Vicente (CEO Overseas), Patrícia Barão (Partner DILS), José Botelho (Chairman OneMark Properties) and moderator Fernanda Pedro (Director, Diário Imobiliário)