Cushman & Wakefield predicts the year will close with 2.8 billion euro invested in commercial real estate. If confirmed, this will be the third-best market result ever.
In December 2019, Cushman & Wakefield’s estimates pointed towards a transaction volume close to 3.4 billion euro, which would have represented a new historical maximum for the country.
Paulo Sarmento, Partner and Director of Capital Markets at Cushman & Wakefield stated «unlike what took place during the last financial crisis, foreign investors’ interest in the Portuguese market remained throughout the year. After an initial stage of «wait and see», the market’s main players not only recognised the good response the country gave against the pandemic but were also pressured by their high liquidity levels. The breakdown in investment is perfectly in line with that of other countries».
During this year’s first quarter 1.5 billion euro were traded, with foreign capital representing 73% of all investment, and with a big impact from large deals. The highlight goes to the sale of Sierra Prime’s portfolio (before the pandemic was declared) to a consortium constituted by insurers Allianz and ELO, and the purchase by Palm Invest of Real hotels, which together represented 70% of all investment until March 2020.
On the other hand, the second quarter had one of the lowest investment volumes in the history of Portuguese real estate, revealing greater caution from many investors during the confinement period. According to the consultant, during this period, several assets were taken off the market by sellers. Between April and June, transactions represented only 141 million euro, all from foreign investors.
With the improvement of the pandemic situation during the Summer, investment activity gradually restarted. The highlight went to the sale of Lagoas Park by Kildare to Henderson Park, for 421 million euro, an off-market deal which excluded the traditional structured sales process and which is becoming increasingly more frequent in Portugal, noted C&W.
A few days away from the end of the year, 40 investment deals were closed in Portugal, a volume of 2.6 billion euro. Until the end of the month, other deals worth a total of 200 million euro may still be closed. If the annual volume reaches the estimated 2.8 billion euro, 14% below last year’s results.
Housing rental may attract €500M next year
Regarding next year, the consultant noted that «investment activity is still surrounded by some uncertainty». Paulo Sarmento commented that it «is inevitable to recognise the pandemic crisis had a significant impact on commercial real estate investment in Portugal (…). Currently, the business volume with a high probability of being closed next year totals only 1.7 billion euro, compared to 2.6 billion euro one year ago».
According to C&W, there are 60 real estate assets under pre-negotiations, representing a value close to 2 billion euro. These operations are expected to be concluded between 2021 and 2022, but «the investors’ growing trend is to opt by off market deals which makes it difficult to make any forecasts, and it is very likely that in 2021 we will be surprised once again by unexpected deals», concluded Paulo Sarmento.
The office segment will «surely» dominate investors’ preferences in 2021, but a new «star» segment is expected to rise, institutional investment on housing rental, which may even surpass 500 million euro.
This is one of the segments which is under the radar of institutional investors. This segment, internationally known as Private Rented Sector (PRS), and which consists of significant housing rental portfolios, has been on the rise in Europe and was, in 2020, the second segment with more capital invested in.
The consultant remarked that «in Portugal, this type of investment is still taking the first steps, but many developers and investors are already positioning themselves to carry out projects in this segment».