Investment, which exceeded the €90m registered during the second quarter of 2020, was dominated by office purchases. Offices accounted for the majority of the nine transactions in the market, and included a Singaporean fund’s €120m investment in the seven-asset Navigator portfolio.

Patricia Melo e Liz, Chief Executive Officer, Savills Portugal, says: “Now that the debate on distance working has calmed down and more hybrid work practices are being accepted, most companies expect their employees to return to the office for at least some days during the week.”

Confidence in the prime office market, where yields have remained at 4%, has been buoyed by the country’s vaccinations program, which aims to have 70% of its adult population vaccinated by September 2021.

While office take-up in Lisbon registered a 34% decrease in the first quarter of 2021 (compared to the same period last year), occupier activity is increasing month-by-month. Savills anticipates that the TMT's & utilities sector, consultants, lawyers and business service occupiers will significantly increase their leasing activity. 

Food retail attracts investment post-pandemic

Investment in the food retail sector is also benefiting from international interest, such as Blackbrook Capital’s purchase of two commercial food distribution units in February.

The sector has benefitted from increased food consumption during the pandemic. Given the stable, long-term contracts provided, it is expected to attract buyers with long-term return targets.  

The industrial and logistics sector has the greatest potential for margin compression, where prime yields stand at 6.25%, Savills also predicts.

Increased demand for prime logistics assets is coming from industries such as pharmaceuticals, the automobile industry, food and services. This appetite has been growing against a 23% fall in absorption during the first quarter compared to the same period of 2020.

Facilities that support third party logistics operators continue to be the most sought after product, either to meet the increased needs of their existing clients, or to achieve growth objectives.

Home sales increase by 21%

A rapid recovery in Portugal’s residential sector is also underway, with 49,608 homes sold during the first quarter of 2021 - a 21% increase compared to the same periods of 2020 and 2019. Sales in the Greater Lisbon area rose by 47%.

Savills predicts that the increase in single-parent households, the rise in sales prices and the uncertainty about the future have also led to an increase in demand from the rental market, which is not yet effectively met by the current market supply.

International retail brands seeking prime locations

International retail brands are seeking prime locations at more competitive prices. Rental values are under pressure, particularly in high street shops and shopping centres, which have been among the most affected sectors during the Covid crisis.

Paulo Silva, Head of Country, Savills Portugal, says: “The recovery of the tourism sector will need to be swift to bring back the flow of tourists that is so important to the growth of the high street sector in Lisbon.”