MARKETBEAT PORTUGAL 2018 A Cushman & Wakefield Research Publication
www.cushmanwakefield.pt
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2017 maintains exceptional growth of previous years and reaches new historic highs.
EXECUTIVE SUMMARY 2017 was yet another excellent year for the property market in Portugal, with all sectors recording increased activity, both at an occupational level and in terms of investment. Rental values and yields echoed this good performance and in many cases reached new historic highs. Investment activity, in line with what has been witnessed at a global level and with particular emphasis on Europe, has remained extremely dynamic throughout 2017, achieving a new record in terms of volume, with over â‚Ź2 billion transacted. Occupational activity underpins the interest of investors in the property market. The office sector had one of its best years ever, with a total of 167,000 m2 transacted; in the retail sector, both shopping centres and high streets are experiencing strong retailer demand driven by increased consumer confidence and booming tourism; and the industrial sector, normally less active, has also witnessed an increase in demand and is starting to show a shortage of quality supply.
Eric van Leuven Head of Portugal
CONTENTS
01
02
PAGE 5
PAGE 7
RETAIL
INDUSTRIAL
ECONOMY
03
OFFICES
04
PAGE 13
PAGE 17
05
06
PAGE 21
PAGE 25
07
08
PAGE 29
PAGE 33
HOTELS
INVESTMENT
RESIDENTIAL
THE MARKET IN 2018
A Cushman & Wakefield Research Publication
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MARKETBEAT PORTUGAL
ECONOMY The Portuguese economy maintained, in 2017, the positive trend begun 3 years ago, with growth in the past year of 2.7%, the highest of the last decade. As in previous years, but to a greater degree, the engines of economic growth were private consumption, investment and exports, which in all cases grew at a higher rate than in 2016.
ECONOMIC INDICATORS 2017
2,7%
2,2%
7,4%
9,2%
GDP
Exports
Private consumption
Unemployment rate
Instability in the national banking sector is still considered one of the main risks to the economy in the future, however the correction which has been put in place, including through the sale of non-performing loan portfolios, is proof of progress in place.
Investment
ECONOMIC FORECAST 2018/2019
EMPLOYMENT FIGURES
9,1%
Highest economic growth in a decade.
+3,1% Job creation
Estimates for the coming years point to a continuation of this good economic performance. According to Oxford Economics, GDP will grow by 2.2% in 2018 and 1.9% in 2019. Private consumption will continue to contribute positively to the economy in 2018, thanks to the continued reduction in unemployment, the increase in confidence levels and a low level of inflation, estimated to be around 2% for 2018. Investment will also remain high, although less so than in 2017. Finally, exports will be the third pillar of economic growth in 2018, with a trade balance surplus expected for this year.
2,2% / 1,9%
2,1% / 1,5%
GDP
Private consumption
5,7% / 4,5%
4,4% / 3,9%
Exports
Investment
The main credit rating agencies recognise the improvement in the economic situation, with Standard & Poors and Fitch classifying Portuguese debt at investment grade level at the end of last year. In April 2018, Moody’s is expected to follow this trend by reviewing the Portuguese debt rating upwards.
Source: Oxford Economics
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A Cushman & Wakefield Research Publication
Economic growth and job creation contribute positively to the office sector
167,000 sq.m Transacted area 16% Growth 250 Deals
18,000 sq.m New companies
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MARKETBEAT PORTUGAL
OFFICES
TAKE-UP
TAKE-UP BY ZONE
Thousand sq.m.
In Greater Lisbon take-up has increased 16% and prime rents 5%
Thousand sq.m.
From January to December around 167,000 m2 were transacted in Greater Lisbon, spread over 250 deals, representing one of the highest growth rates of the decade, but even so the shortage of quality supply continues to limit activity.
Zone 6 (Western Corridor) saw the largest volume of take-up, 26% of the total, including two of the main transactions of 2017, both in Lagoas Park where Janssen Cilag and Google occupied around 4,900 m2 each. Zone 4 (Secondary Zones) was the stage for the three largest leases of the year: law firm Vieira de Almeida (12,000 m2), marketing group WPP (9,200 m2) and lawyers Abreu Advogados (5,800 m2) all occupied new offices in the riverside area of the city, under pre-lease agreements of new projects completed in 2017.
The current strong growth in demand, the shortage of quality space in the city centre and improved financing conditions should now result in an increase in development activity over the coming years. Nonetheless there are currently only nine office projects in Greater Lisbon scheduled for conclusion by 2020, bringing over 100,000 m2 of new supply to the market, part of which already has occupation guaranteed.
VACANCY BY ZONE
4.64 million sq.m
Greater Lisbon Area Stock
8.6%
From 2012, supply of new offices in Greater Lisbon was very incipient, due to the contraction of the demand and restrictions to financing in the property sector. 2017 witnessed some new supply, although no more than three new buildings, totalling 28,000 m2.
%
Vacancy rate
Source: Cushman & Wakefield / LPI
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A Cushman & Wakefield Research Publication
LISBONN250-1 OFFICE MARKET - MAIN ZONES A16
A8
A36
E1
N117 A9 A12 N250
A36 IP7
IC16
A16
VASCO PONTE DA GAMA VASCO BRIDGE DA GAMA E1
N249-2
A37 N117
E1
N249-4
AMADORA N249-4
A36 A36
A9
ZOO
A37 SINTRA CACÉM QUELUZ
ALFRAGIDE
N6-2
MONSANTO
N117
N117 N249-3 A5
A5
A5
A5
MIRAFLORES
AJUDA
RESTELO
N6
PAÇO DE ARCOS
OEIRAS
N6
TAGUS RIVER
ALGÉS N6
N6
IP7
N6
RIO TEJO
25 DE ABRIL PONTE BRIDGE 25 ABRIL
N6
16
IC
IC2
ODIVELAS
CRIL - IC17
CRIL - IC17
A2 A1
VASCO DA GAMA PONTE BRIDGE VASCO DA GAMA
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RIO TEJO Zone 1 - Prime Central Business District (Av. da Liberdade, Saldanha) Zone 2 - Central Business District (Avenidas Novas, Amoreiras) Zone 3 - New Office Areas (Praça de Espanha, 2ª Circular) Zone 4 - Secondary Office Areas (Historic Area) Zone 5 - Parque das Nações Zone 6 - West Corridor Out of Town (A5 Lisboa - Cascais)
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MARKETBEAT PORTUGAL
The volume of vacant offices in Greater Lisbon today is approximately 400,000 m2, of which over 250,000 m2 are located within the Lisbon Municipality. However, the size and specifications of these spaces are highly varied, and there continues to be a clear shortage of quality offices, of medium and large scale. Zone 6 remains the zone with greatest availability, with a vacancy rate of 15.6%, while zones 4 and 5 (Parque das Nações) show very low vacancy rates, in the order of 1.7%. The very positive momentum of the market has resulted in a general rental increase. Prime rents have risen 5% in Lisbon, achieving €20/m2/month at the end of 2017.
GREATER PORTO OFFICE AREAS
MARKET RENTS Zone
2017 Average Prime
Zone 1 (Prime Central Business District)
17.75 €
20.00 €
Zone 2 (Central Business District)
15.00 €
17.00 €
Zone 3 (New Office Areas)
13.00 €
15.00 €
Zone 4 (Secondary Office Areas)
14.50 €
16.50 €
Zone 5 (Parque das Nacões)
16.00 €
17.50 €
Zone 6 (West Corridor Out of Town)
9.75 €
14.00 €
Porto
13.00 €
16.50 €
GREATER PORTO The total office supply in the Greater Porto market totals ca. 1.5 million m2, largely concentrated in the city of Porto (800,000 m2) but also extending to the municipalities s of Maia, Matosinhos and Vila Nova de Gaia. The vacancy rate is estimated to be less than 11% today and is located largely in the city of Porto, where most of the supply is in need of renovation. The quality of supply is one of the limiting factors to the growth of the office market in Porto. This has been recognised by some property owners who have been investing in the renovation of their properties. The office projects scheduled for Greater Porto in the coming years total over 100,000 m2, spread over six developments. These include, in the city of Porto, the Oporto Centre (13,600 m2, where French bank Natixis recently opened their centre of Excellence) and the Boavista Office Centre (8,500 m2). In Matosinhos, the expansion by 45,000 m2 of the Lionesa Business Centre and the development of the Urbo Business Centre (11,500 m2) are scheduled.
OFFICE SUPPLY IN GREATER PORTO
Porto Boavista Porto - Downtown Porto - East Porto - ZEP Maia Matosinhos Vila Nova de Gaia Source: Cushman & Wakefield / Predibisa
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A Cushman & Wakefield Research Publication
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MARKETBEAT PORTUGAL
Increasing demand has been noticed in Greater Porto since 2015 as a result of the overall economic growth of the country, but also the attractiveness of the city among international companies. Even so, and due essentially to the absence of large-scale office developments, the take-up in Greater Porto in 2017 recorded only 20 new leases in quality buildings, totalling approximately 20,000 m2.
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The pressure for rents to increase in the best locations will proceed, which may result in the beginning of speculative development.
The municipalities of Vila Nova de Gaia and Porto were the destinations of the largest deals of the year, with Teleperformance occupying 4,000 m2 in the Arrábida building and Veniam Works, 1,500 m2 in Trindade Domus, respectively. The city of Porto represented the largest volume of area occupied, notably in the Boavista area, which is still the prime location in Greater Porto. Market rents reflect the effects of increasing demand associated with the shortage of quality supply, with successive rises since 2015. Prime rents on Avenida da Boavista, the CBD of Greater Porto, are currently at €16.50/m2/month, with average values in this area around €13/m2/month.
TRENDS 2018 In 2018 demand will continue to grow. Given the lack of quality and large-scale spaces, preleases will continue to be a feature for tenants requiring large areas. The pressure for rents to increase in the best locations will proceed, which may result in the beginning of speculative development. Residential use is now the most valuable in the city centre, which is leading to the conversion of some older or obsolete office buildings into residential, exacerbating the trend of decentralisation from the historic prime office area. Large international occupiers from the coworking, shared services, contact centres, BPO’s and technology sectors are placing Lisbon, and, in some cases, Porto, on their list of preferred locations, and will represent a very significant share of leases in the near future.
Carlos Oliveira Head of Office Agency
New occupancy models, a different profile of employees and technological innovation are slowly and subtly changing the architectural and technical requirements of office properties, which will lead to less homogenous supply in the future.
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Uma publicação Cushman & Wakefield
The positive momentum of the sector is evidenced by the continued demand for retail spaces.
750 Retail deals in 2017 39% High street 42% Greater Lisbon
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MARKETBEAT PORTUGAL
RETAIL The retail sector in Portugal maintained the strong growth in 2017 which had been recorded since 2015. The volume of retail sales rose significantly in the second half of 2017, with the Index published by INE recording growth of 5.7% in December when compared to same month of the previous year.
Increase in private consumption and the growth in tourism boost the retail sector
The indicators of the shopping centre industry also reflect a good performance, and according to the Portuguese Shopping Centre Association, the sales volume in shopping centres increased by 9.8% in the 3rd quarter of 2017, while visitor numbers grew 3.6% in the same period.
Shopping centres attracted the largest number of openings in 2017, mainly thanks to the opening of two new projects: Mar Shopping Algarve and Évora Plaza. The vibrancy of high street retail, which re-emerged in recent years as a viable retail format, is confirmed by demand statistics: over the past year around 300 new openings were recorded in the high street .
TAKE-UP BY SECTOR
Since 2014, economic growth, increased consumer confidence and renewed retailer demand have led to more development activity. In 2016, supply of modern retail schemes increased by 114,000 m2, and in 2017 two new retail schemes opened totalling 100,000 m2 of new space.
83,000 sq.m MAR SHOPPING ALGARVE Nr. of deals
16,400 sq.m ÉVORA PLAZA
RETAIL SUPPLY
* Research by Cushman & Wakefield based on a non-random sample sourced on public data and targeted field work.
The positive momentum of the sector is evidenced by the continued demand for retail spaces. In accordance with Cushman & Wakefield’s sample, around 750 new retail deals were closed in the country in 2017, with the vast majority in Greater Lisbon. As in previous years, the food & beverage sector was the most active, representing 36% of new openings, or 270 units. Fashion was the second most active sector, with 180 new retail units (24% of openings).
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A Cushman & Wakefield Research Publication
MARKET RENTS 2017 In the coming years, new supply will essentially be driven by the expansion of existing shopping centres, including NorteShopping, Centro Colombo and Oeiras Parque. Future potential for the development of new, large-scale retail projects in Portugal is low.
Format
Location
Prime Rent
High Street
Lisbon - Chiado
120.00 €
High Street
Lisbon - Av. Liberdade
95.00 €
High Street
Lisbon - Baixa
82.50 €
High Street
Porto - Rua Santa Catarina
65.50 €
The positive growth in demand has led to a significant increase in prime rents in shopping centres and high street retail. Average rents also recorded strong growth.
Shopping centres
Portugal
100.00 €
Retail Parks
Portugal
10.00 €
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Retail is a people-driven business. Its experiential side – the part which involves product discovery and socialisation with others – will not disappear.
TRENDS 2018 In 2018, steadily increasing consumer confidence and tourist numbers will continue to drive spending in all segments of the retail market. In addition we are witnessing an undeniable revolution in standards of consumption, supported by the many forms of buying and the challenges brought on by technology and artificial intelligence. Retailers and property owners seek the most diverse ways to capture the consumer’s attention, places the consumer at the centre of retail again. Retail is a people-driven business. Its experiential side – the part which involves product discovery and socialisation with others – will not disappear. The consumer will continue to visit physical shops, not because they wish “to buy products”, but because they want to experience emotions not found in other places. The personalisation of the product or the experience will continue to be a key trend in retail in 2018.
Sandra Campos Head of Retail
There is also no doubt that retail is becoming more vibrant and diversified than ever. The proliferation of unique concepts, independent shops, craft products and exceptional spaces seduce consumers. In the future, a future which has in fact already begun, retailers will realign their business strategies with the needs and desires of customers, who are today drawn far more by a deep desire for experiences, than any wish to merely buy goods.
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MARKETBEAT PORTUGAL
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A Cushman & Wakefield Research Publication
Take-up in 2017 indicate a possible turning point in the cycle, with an increase in the volume of spaces transacted.
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MARKETBEAT PORTUGAL
INDUSTRIAL Industrial activity has made an important contribution to economic growth in Portugal in the past years. The indicators reveal steady increases in the sector, not only in the confidence levels, but also in industrial output. Following sharp falls between 2010 and 2012 both indicators began to grow, peaking in 2017.
INDUSTRIAL SECTOR INDICATORS
The property market in Portugal has however not reflected, to date, the strong industrial activity. TAKE-UP | GREATER LISBON
Source: Consultants pool / LPI Industrial
Source: INE Annual Average*
The property market in Portugal has however not reflected, to date, the strong industrial activity. The years of economic crisis resulted in low occupancy levels, on the part of logistical operators, when compared to total capacities of properties, which in turn allowed for growth in activity in the post-crisis period without recourse to new leases. In parallel, the subdued development activity, largely due to rental levels which barely justify investment in new projects, has also forced occupiers to seek space solutions within properties they already occupy.
Even so, take-up in 2017 indicate a possible turning point in the cycle, with an increase in the volume of spaces transacted. In the past year, 28 deals were identified in Lisbon, totaling 115,000 m2 of leased area. Sonae leased the largest single unit, a 14,000 m2 warehouse in Cartaxo, and the Luis SimĂľes Group occupied the largest total area, around 35,000 m2 over four locations in Palmela and Azambuja.
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Ota
Torres Vedras
Alenquer
A Cushman & Wakefield Research Publication
Carregado
The recent developments in the logistics sector, which have boosted take-up of warehouse spaces all over Europe, should shortly also be felt in Portugal.
V.F.XIRA
Mafra
Alverca
LOURES
SINTRA
AMADORA LISBOA CASCAIS
Alcochete MONTIJO
OEIRAS ALMADA
BARREIRO
Zone 1 - Alverca - Azambuja Zone 2 - Almada - SetĂşbal
Palmela
Zone 3 - Loures Zone 4 - Montijo - Alcochete Zone 5 - Sintra - Cascais Zone 6 - Lisboa
The recent developments in the logistics sector, which have boosted take-up of warehouse spaces all over Europe, should shortly also be felt in Portugal. The exponential growth of e-commerce, though less prevalent in Portugal than in northern Europe, will impact demand for logistics spaces. While it is true
SESIMBRA
that, to date, the distribution of goods acquired through electronic commerce are, in part, undertaken from Spain, or from existing operating platforms, the rampant growth expected in this segment will not be possible without a considerable increase in logistics spaces in the metropolitan areas of Lisbon and Porto.
â‚Ź billion
E-COMMERCE SALES VOLUME
Source: Ecommerce Foundation, Ecommerce Report Portugal 2017 e Global Ecommerce Report 2017
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Related to e-commerce, another phenomenon which will soon impact the market is the so-called last mile distribution. This involves the need of e-commerce distributors to considerably reduce the delivery time of their products, requiring distribution platforms located ever closer to urban centers. This trend is still at an early stage, and is for now only felt in the large consumer centers in Europe. However, the cities of Lisbon and Porto should soon expect a greater demand to meet this specific need.
MARKETBEAT PORTUGAL
MARKET RENTS Rent Range (€/sq.m/month)
Zone
Axis
Location
1
Alverca - Azambuja
Póvoa de Santa Iria, Alverca, Vila Franca de Xira, Azambuja e Carregado
3.25 - 3.75
2
Almada - Setúbal
Almada, Seixal, Quinta do Anjo, Palmela e Setúbal
2.00 - 2.75
3
Loures
Loures, Odivelas, São Julião do Tojal e MARL
3.25 - 3.50
4
Montijo
Montijo e Alcochete
3.00 - 3.25
5
Sintra - Cascais
Sintra, Cascais, Oeiras e Amadora
3.50 - 4.00
Grande Porto
3.25 - 3.50
TRENDS 2018 The industrial and logistics market is, now, clearly feeling the effects of the economic growth. Demand for space continues to rise, both in Lisbon and in Porto and, for the first time in many years, there is a trend for a slight increase in rental levels, particularly for logistics spaces closer to Lisbon, which are increasingly scarce.
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Demand for space continues to rise, both in Lisbon and in Porto.
The situation in Greater Porto is compounded, as there is effectively no space available of high quality for logistics in the locations nearest to Porto. The lack of new constructions in the past 7 years, coupled with low rents, is asphyxiating the market. The greatest demand for space comes from distribution companies that need well-equipped warehouses for cross-docking that are as close as possible to the largest urban centers. This demand is the natural result of the increase in consumption that, as such, continues to act as an engine for change in the industrial and logistics segment. Though less visible than in the rest of Europe, e-commerce and urban logistics in Portugal have arrived and are here to stay.
Ana Gomes Head of Industrial and Land 19
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A Cushman & Wakefield Research Publication
The good performance of the sector, in line with the growing interest of institutional investors in the property market, has reinforced the potential of hotel assets as investment products.
57.5 million Overnight stays in hotels 20.6 million Tourists â‚Ź3.39 billion Income
16.6%
Income growth
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MARKETBEAT PORTUGAL
HOTELS 2017 was another excellent year for the tourism sector in Portugal, maintaining the growth trajectory initiated in 2014. The main tourism indicators continue to rise, not only in terms of the number of guests and overnight stays, but also with regard to revenues, which have been recording double-digit growth since 2014. The good performance of the sector, in line with the growing interest of institutional investors in the property market, has reinforced the potential of hotel assets as investment products.
OPENINGS – 2016 & 2017
+100
Hotels openings in 2016 and 2017
+5.000 New rooms
NEW SUPPLY
The number of guests in Portugal in 2017 reached 20.6 million, a year-on-year growth of 8.9%. The number of overnight stays saw equivalent growth, with tourist establishments recording 57.5 million overnight stays between January and December, 7.3% more than in 2016. Total revenues from the hotel industry exceeded €3.39 billion in December, translating into an impressive increase of 16.6% when compared to 2016.
The growth in activity has resulted in strong investment in the sector, on the part of both existing operators and new hotel groups, which began to include Portugal within their hotel network. In the past two years over 100 hotel units were opened in the country, bringing over 5,000 new rooms to the market. The cities of Lisbon and Porto made up the largest portion of this supply, with 33 new hotel units and over 1,800 rooms since 2016.
The expansion of supply will continue in the coming years, with over 155 hotels, representing more than 9,500 new rooms, scheduled for opening by 2019. The regions of Lisbon and Porto will continue to receive the majority of new projects, 60 new units and 5,300 rooms. The Algarve will also witness steep growth, with 15 new hotels (1,200 rooms). The higher categories predominate in hotels due to open by 2019, with 71% of projects being 4 and 5 stars.
MAIN OPENINGS 2017 Hotel
Operator
City
Category
Rooms
Star Inn Lisboa
Hoti Hotéis
Lisboa
3 star
173
Iberostar Lisboa
Iberostar Hotels & Resorts
Lisboa
5 star
166
Jupiter Marina Hotel
Jupiter Hotel Group
Portimão
4 star
150
Maria Nova Lounge Hotel
AP Hotels & Resorts
Tavira
4 star
137
Funchal
4 star
124
Tiles Madeira Hotel Neat Hotel Avenida
Bensaude Turismo
São Miguel
4 star
120
Aurea Fátima Hotel Congress & Spa
Fatima Hotels
Fátima
4 star
108
Eurostars Cascais
Grupo Hotusa
Cascais
4 star
101
Eurostars Museum
Grupo Hotusa
Lisboa
5 star
91
Eurostars Porto Centro
Grupo Hotusa
Porto
4 star
74
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A Cushman & Wakefield Research Publication
In terms of investment, the market has seen increased interest in hotel assets since 2014, both for occupancy, sale & leaseback operations and simply sale for investment. In 2017, three hotel investment transactions were identified totalling an approximate amount of €30 million: The Lux Parque Hotel in Lisbon, acquired by Internos; the Quinta do Arco in Funchal sold to Square; and Lisboa Pessoa Hotel which was bought by a private Spanish investor.
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In 2018, property investment activity is expected to begin to reflect, in Portugal, the appetite already felt in other parts of Europe, positioning the hotel sector as an attractive asset class.
Gonçalo Garcia Head of Hospitality
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TRENDS 2018 The strategy devised and implemented by Turismo de Portugal (the Portuguese Tourist Board) in the early years of the millennium, to consolidate Portugal as a tourism destination, has reaped its rewards in recent years. Portugal and its various tourist regions today enjoy ample international recognition, evidenced by exponential growth in demand, increasing diversification in the range of visitor nationalities and the large number of international awards. These dynamics have consolidated Portugal’s positioning and perceived value as a tourist destination, allowing for double-digit increases in room rates and REVPar, against the background of increasingly higher-qualified new supply. This impressive growth in tourism indicators appears to be sustainable, even though the market is approaching a stage of consolidation for both the destination and the product on offer. The combination of a strong market, a high-quality product and the increasing professionalisation of the sector are creating the right conditions for institutional investment. In 2018, property investment activity is expected to begin to reflect, in Portugal, the appetite already felt in other parts of Europe, positioning the hotel sector as an attractive asset class.
MARKETBEAT PORTUGAL
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A Cushman & Wakefield Research Publication
Several developers have started to focus on mid-range residential projects.
60% Increase in Lisbon average price on the last 5 years
€3,800/m² Average price in Lisbon historic centre
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MARKETBEAT PORTUGAL
RESIDENTIAL The residential market in Portugal continues to display the strong activity seen since 2013. The increase in transaction volumes and market values was maintained throughout 2017, driven in part by foreign buyers who find in Portugal fundamentals to invest their savings, often with a view of capital preservation. The dynamics of the sector are still very much oriented towards high-end products, located in the city centres of Lisbon and in Cascais and targeted to a foreign audience. In 2017, however, demand from middle-class Portuguese families began to increase, who are only finding products located in the various suburbs surrounding the city.
SUPPLY
The dynamics of the sector are still very much oriented towards high-end products, located in the city centres of Lisbon and in Cascais and targeted to a foreign audience. Several developers have started to focus on midrange residential projects, targeting Portuguese families who today are unable to satisfy their housing needs in the city of Lisbon, be it to buy or to rent. The data analysis of SIR (Residential Information System) reveals a decrease in the supply of residential property in the cities of Lisbon and Porto, in line with a sharp rise in values. In the city of Lisbon, average prices have risen by 60% since 2012, and are today of the order of around â‚Ź2,740/m2. In Porto the rise was less pronounced, at 21%, with market values still much lower than those of Lisbon, currently at â‚Ź1,370/m2.
Source: SIR
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LISBON RESIDENTIAL AREAS
Avenidas Novas Peripheral Other Zones Parque das Nações
Antas Peripheral
In the city of Lisbon the historic centre is still the area with the highest prices, with an average value in excess of €3,800/m² as at Q3 2017. The riverside area, with average values in the order of €2,600/m², witnessed the highest increase of the year, in the order of 24%. Investment in the renovation of this area of the city, in addition to a very considerable increase in urban regeneration projects, is one of the reasons for this rise. Parque das Nações, which is today the second most expensive area of the city, with average prices of €3,150/m², recorded less significant growth, as a result of the consolidation of this location and the limited new supply in this last year.
In contrast to Lisbon, the city of Porto has not witnessed, to date, the phenomenon of generalized strong growth in prices . Only the areas of Foz and the historic centre have experienced very significant growth in average prices, in the order of 23% and 21% respectively. As at Q3 2017, average prices in these areas were €2,170/m² in Foz, and €1,920/m² in the historic centre. The remaining areas of the city witnessed more modest growth, with average prices ranging from the €1,365/m² in the riverside area to the €1,060/m² in the more peripheral areas.
AVERAGE PRICES - LISBON
AVERAGE PRICES - PORTO
(€/sq.m)
Foz Riverfront Historic Centre
(€/sq.m)
Historic Centre Riverfront Traditional New Zones
PORTO RESIDENTIAL AREAS
Source: SIR
Source: SIR
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MARKETBEAT PORTUGAL
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A year to remember For real estate brokerage, and for our sector in particular, 2017 was an exceptional year. And not only because the market transacted a higher number and larger volumes of sales than in previous years. It was a year of consolidation and increased activity from traditional markets such as Brazil, France and the UK, while a very interesting flow developed from markets such as the United States, and several European countries for whom Portugal had not been an option as a country for investment. Porta da Frente sold to 35 different nationalities, and this clearly shows the dynamic, not only of the property market, but also the country as a destination for investment and residential living. This last aspect, the change of residence to Portugal, was perhaps the highest-growing motivation in the year of 2017. If in previous years many investors were essentially motivated by tax advantages or Golden Visas, in 2017 we witnessed a large number of families moving permanently to Portugal. And this flow would be larger if the country was better prepared for such high demand, with one of the most obvious examples being schooling: several families opted for other countries as they were unable to find places for their children in international schools. It was also a positive year with regard to the legal and fiscal environment. Fortunately, the fear of the market that this government might be tempted to alter fiscal legislation concerning property, including increasing rates, freezing investment incentives (golden visa and non-habitual resident status) and incentives for urban regeneration, was unfounded. These programmes, and a stable fiscal environment, are fundamental to the consolidation and development of the property market. Finally, prices. We believe that 2017 was the last year of a high growth rate in prices. Property supply will finally approach demand (even though this will remain at the same level as the previous year). It would be very healthy to witness some price growth but at reasonable levels. If prices continue to grow year upon year at the same rate, this will result in a loss of competitiveness in relation to other property investment destinations.
Rafael Ascenso | Porta da Frente General Manager
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A Cushman & Wakefield Research Publication
Diversification in the origin of capital, a greater propensity for large volumes and property portfolios, the attraction of subsectors previously not considered by institutional investors, among other aspects, characterize the post-crisis property investment market.
â‚Ź2.1 billion Commercial property investment in 2017
67% Foreign investment 19 Portfolio deals
Fonte: Cushman & Wakefield / LPI
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MARKETBEAT PORTUGAL
INVESTMENT Transaction volumes exceed the €2 billion mark for the first time.
The Portuguese investment scene has changed beyond recognition since 2015. Diversification in the origin of capital, a greater propensity for large volumes and property portfolios, the attraction of subsectors previously not considered by institutional investors, among other aspects, characterize the post-crisis property investment market. This context, along with high levels of liquidity in world financial markets and a general rise in prices, has contributed to a very considerable increase in investment volumes.
COMMERCIAL INVESTMENT
The United Kingdom – strongly represented in the investment market until 2014 – re-emerged as the principal source of foreign investment with a share of 24%. In second place, China appears with a 19% share resulting exclusively from the acquisition of Blackstone’s logistics portfolio by the China Investment Corporation (CIC). South African capital entered Portugal for the first time in 2017, with the purchase of Forum Viseu and Forum Coimbra shopping centres by Green Bay, attaining a 16% share.
SOURCE OF INVESTMENT
Estimate
Greater diversity in the origin of foreign capital was seen again in 2017, with considerable variations when compared to the origin of capital over the past decade.
%
In 2017, total transaction volumes reached a new historic high of around €2.1 billion, spread over 60 deals, 19 of which concern portfolios. Foreign capital continued to be the main driver of activity, but its market share decreased considerably, representing now 67% of the total.
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INVESTMENT BY SECTOR
Investment in the office sector broke another record with a new historic high of €770 million, or 38% of the total volume. The purchase of the EDP headquarters in Santos by the EDP Pensions Fund was the largest office deal in 2017. Retail captured an amount of €740 million, 36% of the total, with the €220 million Forum Coimbra and Forum Viseu portfolio acquisition by Greenbay the largest retail deal of the year. The industrial sector, in line with the trend anticipated in 2016, has sparked increasing investor interest and represented 15% of the total invested in 2017, around €330 million. The purchase of the logistics portfolio of Blackstone on the part of CIC represents a large part of this.
The alternative sectors such as Hotels, Healthcare and Education also begin to appear as real investment alternatives.
The alternative sectors such as Hotels, Healthcare and Education also begin to appear as real investment alternatives, representing 9% of the total amount allocated to commercial property. This includes the acquisition of two assets occupied by Parque International School, a portfolio of CUF hospitals and the Lux Park Hotel in Lisbon.
2017 MAIN TRANSACTIONS ASSET
SELLER
BUYER
VALUE (€)
Logicor Portfolio
Blackstone
China Investment Corporation
260 million
Forum Coimbra & Forum Viseu
CBRE GI
Greenbay
220 million
Vila do Conde The Style Outlets
Neinver
Via Outlets
130 million
CUF Hospitals Portfolio
Selecta
José de Mello Saúde
120 million
EDP HQ - Lisboa
EDP
Fundo de Pensões EDP
101 million
MaiaShopping & GuimarãeShopping
Sonae Sierra
Ocidental
93 million
Entreposto Building
Grupo Entreposto
Signal Capital
65 million
Throughout 2017, yields continued to harden although less pronounced than in previous years. As at December, prime yields stood at 4.50% for offices, 4.90% for shopping centres, 4.50% for high street retail and 6.25% for industrial. These reflect historic lows in all categories.
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The excellent economic performance, the improvement in the rating of Portugal by Standard & Poors and Fitch, and the greater number of banks prepared to provide property finance, all sustain this yield compression.
MARKETBEAT PORTUGAL
2018 will see further strong activity, with the total CRE investment as at the end of February already standing at €800 million. This amount corresponds in almost its entirety to retail asset transactions including the purchase of the Blackstone shopping centre portfolio (Forum Sintra, Sintra Retail Park and Forum Montijo) by Immochan and the investment of AXA Real Estate in the largest shopping centre in the country, Dolce Vita Tejo.
TRENDS 2018 Portuguese real estate will continue to attract record levels of capital in 2018 – this is already easily predictable, with less than two months into the year and €800 million of transactions already closed. The amount of investment recorded in Portugal in the first weeks of 2018 represents around 40% of the total amount transacted in 2017, which in itself represented a record high in Portugal.
Cushman & Wakefield’s forecasts for the transaction volumes by year-end range between €3 billion and €3.5 billion. The retail sector will hold the largest share of investment in 2018, but offices will also attract a very significant amount of capital. Mixed-use and hotel portfolios will equally experience much interest.
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Foreign players invest in the country with a long term view.
The unprecedented liquidity found in Europe today is channelling capital, on a larger scale than expected, to more peripheral countries, with very attractive risk/ return profiles, supported by the real economy. In Portugal, the economy has displayed highly favourable behaviour and the occupier markets display sustained growth, fed by healthy, growing domestic demand and by foreign players who invest in the country with a long-term view. Investors in the Portuguese market in 2018 will combine Portuguese and international capital, and the involvement of local players, which began to be evident in 2017, should be maintained. The type of parties involved will be extremely varied, covering different risk profiles but with an increasing participation of more conservative players, seeking property with a considerably limited risk profile, and, therefore, willing to pay higher prices. 2018 should also mark the entrance of niche operators, focussed on alternative segments such as hotels, student housing, healthcare facilities or co-working centres.
Paulo Sarmento Head of Capital Markets
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MARKETBEAT PORTUGAL
THE MARKET IN 2018 The prospects for the property sector in 2018 are optimistic. In the occupational market, good economic performance and, in particular, the forecast for positive growth in employment and private consumption, as well as investment, suggest a good year for the office and retail sectors. In the case of offices, the problem of shortage of quality supply remains, which may limit take-up, but development activity in the cities of Lisbon and Porto shows signs of beginning and should help in overcoming this limitation in the future.
Foreign capital continues to consider Portugal as an excellent investment alternative, offering limited risk levels at attractive rates compared to the majority of European markets.
Investment activity, assuming a continued low interest environment and a very gradual decrease in expansionist monetary policy of the European Central Bank, should maintain the levels of activity of previous years in 2018. This is helped further by the recent upgrade of the Portugal’s sovereign debt rating by Standard & Poors and Fitch. Foreign capital continues to consider Portugal as an excellent investment alternative, offering limited risk levels at attractive rates compared to the majority of European markets. Investment deals currently in the pipeline, and forecast to close in 2018, largely exceed the amount transacted in 2017, a very significant indicator of the attractiveness of the Portuguese market. 2018 will also be a year of increasing innovation in the property market. It is expected that alternative sectors, to date relatively unexplored, such as hotels, co-working spaces, student housing or senior housing will begin to emerge, capturing the interest of occupiers and investors.
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MARKETBEAT PORTUGAL
CONTACTS Head of Portugal
Research e Consulting
eric.vanleuven@cushwake.com
marta.costa@cushwake.com
Eric van Leuven
Marta Esteves Costa
Office Agency
Retail
carlos.oliveira@cushwake.com
sandra.campos@cushwake.com
Carlos Oliveira
Sandra Campos
Industrial & Land
Capital Markets
ana.gomes@cushwake.com
paulo.sarmento@cushwake.com
Ana Gomes
Paulo Sarmento
Valuation & Advisory
Property & Asset Services
ricardo.reis@cushwake.com
bruno.silva@cushwake.com
Ricardo Reis
Bruno Silva
Project Management
Shopping Centre Management
matthew.j.smith@cushwake.com
andre.navarro@cushwake.com
Matthew Smith
AndrĂŠ Navarro
Porto
Filipe Lopes
filipe.lopes@cushwake.com
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For further information or additional copies of this or other reports, please contact: Filipa Mota Carmo Marketing filipa.carmo@cushwake.com Tel.: +351 213 224 757
Cushman & Wakefield is a global leader in commercial real estate services, helping clients transform the way people work, shop, and live. The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. This document contains general information and it has been used by Cushman & Wakefield on the assumption that it is correct and accurate. Cushman & Wakefield declines all responsibility if this is not the case. No warranty or representation, express or implied, is made as to the accuracy of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental, or other conditions, and withdrawal without notice or at the request of our clients. © 2018 Cushman & Wakefield. All rights reserved.
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