Real Estate Investment in Portugal totals 1.7 billion euros in the first half of 2020
The 1st quarter of 2020 registered a very strong surge to account for close to 50% of the total volume of investment experienced throughout both 2019 and 2018.
- Lisbon office market expected to undergo a 25% drop in occupancy. In turn, in Oporto, the absorption volume for the office sector rose by 38% in the first half of this year.
- Residential market recorded an 11% drop in prices in Lisbon and fell back 9% in Oporto.
The real estate market suffered from the impact of the Covid-19 pandemic resulting in falls in both the number of transactions and the volume of investment in various areas of this sector. The data detailed in this report are presented by Savills, the international real estate consultancy, which provides this overview of the Portuguese market over the first half of this year while also seeking to forecast some of the market trends prevailing in the final months of 2020.
In the Portuguese investment market, the first half of 2020 accounted for total transactions of 1.7 billion euros, with 94% of this amount however deriving from deals closed over the course of the first quarter.
The first quarter alone registered an exceptional level of total investment, approximately 1.5 billion euros, verging on half of the total amount of investment registered in both 2018 and 2019 following the closure of major deals in the retail, office and hotel segments. In comparison with the first quarter of 2020, the real estate market then experienced a slump of 87% with the year-on-year slide coming in at 16%.
“The Covid-19 pandemic generated a significant impact on the real estate market with the retail and hotel sectors clearly the worst hit. Despite the uncertainties surrounding a potential second wave and the measures needed for its control, there is nevertheless an important dynamic in terms of the assets under promotion that highlights the confidence of investors over the medium and long term”, stated Paulo Silva, Head of Country at Savills Portugal.
Taking the entire first half of the year into account, a total of 25 transactions took place with five of these relating to office, retail and hotel portfolios and accounting for a total of over 1.2 billion euros, representing 81% of the total investment volume over these six months.
In comparison with the previous year, the number of deals closed experienced a 19% decline while the portfolio transactions remained at the same level as those recorded in 2019.
Throughout the months of April, May and June, the market transactions settled in the Portuguese market were entirely focused on the office market.
International capital remained the dominant force in the Portuguese market, making up a total of 76% of the completed operations with American investors leading the table in terms of the nationalities investing the largest total amounts.
Investment asset management funds were the key players in this period, contributing to 40% of the deals done and an amount approximate to 350 million euros.
In turn, insurance companies stepped up with the largest investment amounts and totalling in the region of 800 million euros in just three transactions. The largest single deal came from the sale of 50% of the Sonae Sierra Fund that incorporates the Colombo, Vasco da Gama, Cascais Shopping and Norteshopping Malls for an estimated amount of 750 million euros acquired by the German insurer Allianz and its Finnish peer Ellos.
The private equity transactions represented 32% of the total number of operations with the weighting of domestic investment standing in the region of 50%.
Lisbon and Oporto with significant declines in their office markets
With the pandemic hitting Portugal in late March, the pace of activities in the office market displayed significant signs of slowing. In the first three months of 2020, the Lisbon office market experienced a 24% year-on-year decline. In the early months of this year, the expectation of recording a positive end to the year remained high stemming from the active demand and proof of the solid financial basis of the private sector. As from April onwards, the occupancy rates now indicate a fall of 25% through to the end of year.
In the first three months of 2020, the Lisbon office market saw a total occupancy volume of 43,934 sq.m. Over the course of these months, deals were closed on operations with their decision-making processes already ongoing since 2019. Randstad, Infosistema, IdeaHub, Majorel and BNP Paribas feature among some of the companies that reached agreement on deals involving areas of over 3,000 sq.m and that did much to contribute towards the good result.
In the Oporto market, in the first quarter, there was a 38% year-on-year increase in the absorption volume. In comparison with the amounts analysed for the Lisbon office market, the Oporto market saw a very positive start to the year.
Research carried out by the Municipal Council of Oporto on the impact of Covid-19 on the business sector stated that the majority of companies noted slight falls in activity with 15% recording levels down at least by a half. The Tourism and Shared Services sectors were those registering the highest falls in contrast to companies involved in the Information and Communication Technology sector that experienced lower levels of impact.
“This year was already expected to be a record year for the City of Oporto following its choice as the destination for projects under implementation by major multinationals. This dynamic continued in effect even against growing concerns around the sector caused by Covid-19 and as noted to a greater or lesser extent worldwide. In relation to the future, we believe that offices shall continue to form a fundamental component in company productivity models even while adopting more flexible working strategies.”, identified Rodrigo Canas, Offices Associate Director of Savills Portugal.
E-commerce tests the adaptation capacity of the logistics and retail sectors
The retail sector was undoubtedly among those most affected by the Covid-19 pandemic. Commercial activities were forced to shut their doors throughout the month of March and with public service only by supermarkets and hypermarkets alongside some other basic need services, such as chemists and fuel stations, among others. Supply and demand underwent substantial distortion due to the ongoing crisis and triggering significant falls in prices.
Nevertheless, the confinement phase drove an increase in online retail sales reflecting a greater willingness towards the digitalisation of consumption processes and a greater concern among consumers over issues around prices, product quality and valuing national brands and products.
“The increase in the consumption of products via digital means served to test the capacity for adaptation and response by logistics companies and operators to this new reality, requiring retailers and manufacturers to make adjustments to their businesses across the levels of distribution chains, prices, products, strengthening and preparing their telephone response services, delivery safety conditions, returns, etcetera... This capacity for adaptation shall prove fundamental to the sector’s recovery,” explained Cristina Cristóvão, Retail Director of Savills Portugal.
The rising significance of online retail may lead to a reduction in the space taken up by physical stores and consequently leading to a search for larger storage and distribution spaces as close as possible to city centres.
Even while the current scenario has driven a downturn in the general majority of business sectors, the industrial and logistics segments have demonstrated strong resistance and increasingly attracting attention from investors.
In January, February and March, this real estate segment registered an absorption volume totalling 139,519 sq.m, of which 81% reflected contract renewals and 16% were new contracts. The Azambuja logistics axis was the market region turning in the best performance having hosted two of the largest transactions in this semester with a total area of 71,447 sq.m taken up by foodstuff distribution operators.
Residential sector dropped away by 24% on mainland Portugal
The residential sector was clearly expanding in early 2020 with every expectation of very positive annual results and new national records for both the number of sales and the prices in effect. In the first quarter of the year, the Lisbon Municipal Council area registered its highest sale price ever (4,038 €/m2). On the other hand, its counterpart in Oporto saw a slight drop in the sales price for the same period against that registered at the end of 2019 (2,269 €/m2).
In fact, the pandemic has also had a major impact on the residential market that, in the first six months of the years saw total sales fall on mainland Portugal by 24%, with prices falling back an average of 8%. In Lisbon and Oporto, the decline in the property price per m2 stood at 11% and 9% respectively.
“Despite the uncertainties that we’re experiencing for the reasons we’re all aware of, the resilience of the residential sector leads Savills to forecast that there should be no significant falls in the performance indicators for this sector, particularly in reference to Lisbon and Oporto, especially as an adjustment in prices and a slowdown in the growth registered over the last seven years was foreseeable even prior to the pandemic”, affirmed Patrícia de Melo e Liz, CEO of Savills Portugal.
With the removal of the restrictions imposed throughout quarantine, the residential sector immediately staged a recovery that reflected in a national rise of 0.8% in the prices and 11% in the sales volume between May and June 2020. According to analysis carried out by Savills based on the SIR (Residential Information System) statistical data, we may expect the prices observed at the end of June to have remained unchanged in Lisbon coupled with a boost to the number of units sold.
We would also highlight that, according to a Savills survey of some of the largest residential market players, potential purchasers are now paying more attention to the existence of rooms within the house where they might be able to set up autonomous working spaces due to the surge in remote working practices. There is also demand for larger living rooms, spacious balconies and leisure zones. There has also been a slight recovery in the demand for homes that in general terms are situated in satellite locations around the major cities.
In conclusion, Savills predicts that there remain some factors of strength driving a faster recovery in the market.
“The maintenance of interest rates at extremely low levels and the high level of capital availability shall continue to favour investments in real estate assets. The impact of the pandemic shall directly influence these real estate assets as we are witnessing behavioural changes in potential investors and purchasers, which emerge in conjunction with a lower level of willingness to travel, greater openness to new ways of working and organising work and a profound rethinking of retail sales channels”, concluded Alexandra Portugal Gomes, Market Research Associate at Savills Portugal.