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Portugal set for record real estate investment

Strengthening fundamentals

With Portugal’s 2011-14 debt crisis now firmly behind it, signs of an economic resurgence have boosted confidence in the country’s real estate market among both domestic and foreign investors. GDP growth for 2017 was revised up from 1.8 percent to 2.6 percent, with public debt and the budget deficit continuing to shrink. Unemployment, which hit 17.5 percent in 2013, has fallen to 8.9 percent, and is forecast to drop to 7.8 percent during the coming year. Upgrades of Portugal’s credit rating to investment grade are also improving funding conditions and reducing credit costs.

Against this backdrop, and with the 2018 State Budget presenting a range of tax breaks that will benefit both landlords and tenants, investor interest in the country’s real estate markets will continue to grow – especially among foreign investors, who accounted for 80 percent of flows last year. This strong investor appetite has pushed prime yields down to historic lows. However, they remain higher than in most other European markets, helping sustain demand for Portuguese real estate.

Buoyant tourism supports hotels

The hotel sector is also expected to maintain its growing dynamism through 2018, fuelled by a buoyant tourism market that saw a 16.6 percent increase in revenues in 2017 to reach a record €3 billion.

Despite 12 new hotels opening in Lisbon in 2017, and another 25 units expected before the end of 2019, demand in the capital is still rising faster than supply. It’s a similar story in Porto, where six new hotels opened last year, and another 10 are in the pipeline for the next two years.

National management companies continue to dominate this market. However, with such growing popularity, Portugal is becoming a destination focus for large international operators – as evidenced by the entrance of new players such as Iberostar in Lisbon, and luxury Asian operators Oberoi and Anantara, which have chosen Portugal to launch their European expansion plans.

The investment market has seen an uptick in activity too. Nine hotels were traded during 2017, with a sum of 900 rooms and a total value of €110 million. Yet while demand for hotels or hospitality projects is strong, scarce supply means the few available opportunities are considerably inflated, which is restricting the potential number of deals.

Residential keeps moving

Portugal’s residential market continues to exceed expectations, helped by a significant increase in domestic demand due to a general improvement in living conditions, and easier access to and affordability of bank loans. The favorable conditions have led to an 83 percent increase in the number of sold units in Lisbon in the last three years. And while the residential price index has been climbing steadily from its 2013 lows, Lisbon is still considerably more affordable than other European capitals.

Lisbon’s historic centre is especially attractive to investors looking for opportunities to invest in short-term rental. Demand remains high for prime zones (with values in the main areas increasing on average 10 percent to 20 percent), but has also expanded to new build and refurbishment projects in less central areas of the city.

While national buyers seek these new zones for price reasons, international buyers are attracted to the alternative lifestyle these zones offer. For example, the Beato zone is establishing itself as a startup hub and as a cradle for alternative businesses, which is the new focus of several residential developers, where new projects are emerging.

The combination of strong market demand, plus a solid pipeline of residential projects, including some large-scale developments, is set to make 2018 another active year for the residential sector.

Overall, high levels of demand will persist across the traditional real estate sectors. But in addition, alternative sectors such as student and senior housing, hospitals and co-living are attracting increasing interest. The outlook for Portuguese real estate therefore is bright.

(By residentglobal)

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