Commercial Investment

Portugal has experienced growth in GDP since 2015 at a rate systematically higher than the other euro area countries, and unemployment fell from 17.4% in 2013 to 6.5% in 2019. Portugal has therefore been attracting the attention of international investors from different segments of the property business . This investment was boosted by state incentives to urban renewal, the creation and regulation of a short-term rental market, tax incentives for Golden Visa foreigners, a tax regime for non-habitual residents and unprecedented growth in tourism.

In 2020, Lisbon and Porto are up there with Barcelona, Berlin and Madrid when it comes to high-end property segments. Today, the two largest cities, Lisbon and Porto, host international operators with a high diversity in sources of capital, risk profile, type of assets and geographical origin. Portugal has come onto investors’ radar and new operators from all segments are constantly showing up in the Portuguese market. Domestic commercial investment in the property sector totalled EUR 3.2 billion in 2019, most of it from abroad, as opposed to pre-crisis levels of EUR 1.1 billion. Returns on property deals are attractive enough for Portugal to be on the list of countries to be reckoned with when investing global capital. For example, the prime yield on the Lisbon office-space market was among the best in Europe in 2019. The current climate in Portugal and the rest of Europe is one of growing appreciation of assets and compression of yields. Portugal is still in investors’ sights as yields are higher than in other countries.

According to a PWC study, Lisbon has been in the top 10 most attractive European cities for investment since 2017. It is actually the city with the most investment intentions for 2019 and has swapped places with the giant Berlin. Investors are sensing higher available growth potential than in other cities, supported by consistent economic growth, low unemployment, a cheaper, better qualified workforce, better quality of life and lower occupation costs. Lisbon has become a secondary European city that is comparable to the main investment anchor cities, where investors can allocate capital and get a good return. Over these years, Lisbon has equalled and in some cases surpassed cities like Barcelona, Madrid, Vienna, Stockholm, Paris, Helsinki, Prague, Milan and Amsterdam in terms of attractiveness and investment intentions. Lisbon and Porto have become favourite locations for multinationals to set up service centres and expand their outsourcing.

The property market for Portuguese industry and logistics is showing considerable growth capacity. This capacity has been determined by the country’s economic growth and pressure on the distribution sector to keep up with new trends in consumption and distribution. There is a demand for larger, more modern facilities but there is a shortage of appropriate products. This has attracted highly specialised investors and developers. Demand has increased in the territory south of the River Tagus thanks to its potential in terms of square footage and price. As Portugal’s second city, Porto is burgeoning like never before and has won its own place in commercial property investment. It has been attracting not only Portuguese but also many foreign investors.

In 2018, Porto was Europe’s third fastest-growing tech hub. It consolidated its attractiveness as a base for financial and tech companies in 2019, when it was chosen by a number of large multinationals. Porto is expected to have 150,000 m2 and larger projects ready by 2025 covering areas in neighbouring cities and showing unprecedented growth. The high street retail trade in Porto is keeping up with European trends and reflects the city’s visibility as a destination for investment and tourism. For the first timeinternational and luxury brands have been opening shops in the city centre. In this segment, Lisbon is of permanent interest to international and Portuguese brands and this has made the high street market highly dynamic. The growth in tourism and a series of international awards that both cities have won have sustained this energy.

The Portuguese property market’s clear, recognised growth potential and the arrival of international operators make it a stage for applying new investment trends. These new needs for sustainability and more flexible working, living and housing conditions, such as co-housing and mixed-use arrangements are finding a base for key projects in these areas in Portugal. Investment in student halls of residence is one of the current stars in property investment in Lisbon and Porto. It has also reached Coimbra (the country’s third city and the oldest university town in Europe) and Évora, which is a very good opportunity for allocating capital, given the large scope for development. Some of this segment’s major international operators are in Portugal making high investments in these cities.

Residential Investment

Portugal was voted the country with the best quality of life in the world in 2019, according to an InterNations survey. It has remained in the top places in these rankings in recent years, thereby reflecting the opinions of foreigners living and working in different cities in the country. The high-end residential property segment in Lisbon has been the most dynamic and its price per square metre is among the highest in the euro area, more expensive than Amsterdam, Madrid and Barcelona. These properties are mainly for foreigners and affluent Portuguese buyers. Affordable home prices for most of the Portuguese population are significantly lower. Nonetheless, average selling prices have been rising steadily throughout the metropolitan area. We can expect an increase in new construction as a result of urban renewal on the outskirts and in neighbouring towns of the capital.

Sales are taking place on a large scale at pre-2008 crisis levels, generally off-plan, which is a classic indicator of the market’s dynamic and high demand . What Portuguese and foreign developers are interested in now is meeting the needs and housing requirements of middle-class Portuguese segments. Demand for buying and renting is high among Portuguese families. There are currently new centres of housing development in city suburbs and we expect to see the development of completely new areas in both the rental and sale segments. New global trends and high demand for communal-use and flexible shared spaces for living and working among the young, international workforce has boosted pioneering foreign investments in Portugal. They have opened the door for growth in the co-living and co-working sectors. Senior housing has also sparked a lot of interest among investors, as the country has one of the largest ageing populations in the world. This means that it is a market with high growth potential. On the other hand, Portugal’s tourism and successive awards have earned it the status of an excellent place to retire in.

The image that Porto is showing to the world is one of its unique identity and a genuine, culturally profound tourist destination. It has earned a number of international awards, such as the best European destination. The historic city centre is a UNESCO World Heritage Site. The momentum of the Porto housing market has gone beyond the historic centre, and new construction in the outskirts has been growing at a good pace in recent years. It is worth noting that the majority of housing projects belong to Portuguese developers. Porto is now also hosting property projects that are part of global trends among international operators in the fields of shared homes, thereby reflecting a growing interest on the part of the young international workforce and a rise in the number of students in the city.

The territory south of the Tagus is traditionally an underpriced dormitory area but has gained ground in residential investment mainly for domestic demand. In addition to already benefitting from the decision to build the new airport there, the area has cultural and geographical assets that boost its potential in the Portuguese and international markets.

(Written in Q1 2020. Sources: CBRE.; PWC & ULI.; Savills.