At the end of 2023, the Portuguese property investment market totalled 1.6 billion euros, a figure that represents a drop of 50% on the previous year. This scenario shows that Portugal has followed the path of mainland Europe, which has seen a sharp decrease in investment volumes. Factors such as high inflation rates, the rising cost of debt and a mismatch between buyers’ and sellers’ expectations of the sale price are at the root of the drop in activity.

Slower decision-making processes, directly influenced by the risks of an unstable macroeconomic reality, resulted in a natural decrease in transactions, particularly affecting operations with higher investment tickets or involving secondary assets with greater associated risk. 

In 2023, with the exception of the retail and hospitality segments, all the others saw significant decreases in their investment volumes compared to 2022. The retail segment, with a total investment volume 42 per cent higher than in 2022 and representing 38 per cent of the total investment volume, stands out as the most resilient segment in 2023. Shopping centres and retail parks, stand-alones, food outlets and high street shops were the formats that attracted the most interest from investors. The sale of the Amália Portfolio to LCN Capital Partners for 150 million euros and, towards the end of the year, the sale of 5 retail parks by Mitiska to the Swiss Partners Group for an estimated 100 million euros, were the two biggest transactions of the year.

In turn, investment in hospitality totalled 571 million euros, demonstrating that the clear interest and commitment of investors in this segment was decisive in softening the figures for real estate investment activity in 2023. With the main performance indicators surpassing the pre-pandemic figures, the sector has become fundamental to the dynamism of the national economy, attracting strong interest from international investors. The sale of the Dom Pedro Hotels Portfolio for 250 million euros to Arrow Global was the largest transaction of the year. 

It is important to note that for the first time, investment in the so-called alternative segments exceeded the volume of investment in the more traditional star segments, such as the office segment. Investment totalling more than 100 million euros in student residences located in Lisbon and Porto contributed to this result.

Source of capital

In 2023, 79 investment transactions were closed, 54% of which were signed by national investors, representing 30% of the total volume of property investment, with property investment funds, family offices and private investors directing their capital to the acquisition of assets in the retail, hospitality and office segments.

Cross-border capital totalled an investment volume of 1.1 billion euros, mainly directed towards the hospitality, retail, healthcare and student housing segments.

Outlook 2024

The recovery of the investment market in 2024 is directly linked to the moment when interest rates start to fall, leading to greater stability in economic indicators and an increase in the agents’ confidence indices. 

Forecasts point to six interest rate cuts of 25 basis points in 2024, starting at the end of the 1st quarter, which will certainly lead investors to adopt new strategies that incorporate a more favourable macro-financial scenario. Risk diversification towards alternative segments should be the strategy to be used by investors, along with growing interest in the hospitality and retail segments.

Main challenges

A macroeconomic scenario dominated by uncertainty will be one of this year's main challenges, along with geopolitical tensions in a global context. In turn, constant legislative and fiscal changes, combined with government instability, are also challenging factors for 2024.

Paulo Silva, Head of Country, Savills Portugal, says: “  Property investment volumes in Portugal are in line with an average decline of 50% in Europe, as a result of the challenges related to the inflationary context, rising interest rates and the (upward) correction of the yields demanded by investors. On the other hand, a slower price adjustment compared to other European countries has also made it difficult to channel investment into the domestic market. For 2024 and after the upcoming parliamentary elections, the market is expected to stabilise, particularly from the second half of the year, with investors adopting strategies to diversify their portfolios in order to control their level of exposure to risk. Despite the existing challenges, Portugal must capitalise on its strengths to attract foreign investment, which has accounted for more than 85% of the sector over the last decade.”