The end of 2023 confirmed a significant slowdown in commercial real estate investment activity in Portugal, with year-end forecasts of around 1.730 billion euros, 42% less than the volume recorded in 2022, in line with other European markets. This is shown by the accounts of Cushman & Wakefield.
This year, and given the lower availability of foreign capital, national investors increased their market share to 31% of the total volume invested in this area of real estate.
Hotel and retail were the segments that attracted the most capital, 42% and 35% of the total, respectively. 730 million euros were invested in hotels, a figure strongly influenced by Arrow's purchase of the Dom Pedro Saviotti portfolio for 250 million euros. Retail attracted 600 million euros, with the two largest transactions being the acquisition by LCN Capital Partners and TREI of the Amália project (a group of 50 Pingo Doce and Continente supermarkets) for between 140 and 150 million euros; and the purchase by First Retail Partners, a fund managed by Mitiska REIM, of a portfolio of 5 retail parks for around 100 million euros.
In the opposite direction, the office segment accounted for only 9% of commercial real estate investment, for a total of 160 million euros, with the highlight being BNP Paribas REIM's purchase of the Pier III à Períptero building for around 30 to 35 million euros.
The so-called "alternatives" were equally representative, with another 9% of the total invested. Cushman & Wakefield highlights Live Nation's purchase of Ritmos & Blues, including the Altice Arena event space, for around 50 million euros.
On the other hand, the industrial and logistics market accounted for 4% of the total, with Corum Asset Management's purchase from the Vila Nova Group of the Logifam building in Vila Nova de Famalicão, for around 26 to 28 million euros, being very representative.
According to the consultancy, the rates of return « reflected the demand for higher returns from investors, with across-the-board increases in the main sectors of the commercial real estate market compared to 2022 namely between 25 and 75 basis points. Thus, at the end of 2023, prime yields corrected upwards to 5.00% in offices, 4.75% in street commerce, 6.50% in shopping centers and 5.75% in logistics.
Urban development and rehabilitation reduces by more than 50%
On the other hand, real estate development and urban rehabilitation will have seen a 54% decrease in 2023 compared to the previous year. The volume of investment allocated to this type of operation was around 390 million euros, and the most important deals included the purchase of Quintado Morgadinho (Loulé) by Bondstone à Interfundos for more than 50 million euros, or the purchase by the M Caetano à EDP Group of a plot of land in Porto for around 45 million euros.
2023 “was challenging”
Eric van Leuven, managing director of Cushman & Wakefield in Portugal, recalls that 2023 was a challenging year, in a context of rising interest rates in order to control rising inflation and rising financing costs, with a consequent impact on the global real estate market. In Portugal there has been a slowdown in commercial real estate investment activity and, in the occupational market, the office sector in Greater Lisbon has even reached the second lowest absorption figure of the last decade, namely 87,800 square meters.
However, he points out that other sectors have shown greater resilience, maintaining the trend of moderate recovery, such as retail and industrial and logistics. The hospitality sector performed best, even reaching year-on-year figures above those recorded in 2019 (pre-pandemic).
Interest rates should have peaked, and could start to fall this year
Cushman & Wakefield believes that the increase in central bank reference rates will have peaked by 2023, and a contractionary movement could begin in the second half of this year.
For commercial real estate, this could mean different behaviors this year, with the first half of the year still reflecting contraction in some indicators, particularly in the sectors most affected in 2023, followed by the second half of the year with a generalized gradual recovery, predicts Eric van Leuven. As a result, although market reference yields may still undergo some upward correction during the beginning of the year, by the end of 2024 we should be seeing year-on-year stability, possibly with a reduction in yields, and consequent increase in value, among the most resilient categories. In terms of rental values, the shortage of quality supply should continue to justify occasional increases in the gross reference rents for the best assets....
Investment should recover in 2024
With regard to (commercial) real estate investment, current estimates follow this trend, with a volume of investment associated with transactions that are currently in various stages of negotiation and expected to be completed by 2024 in the order of 1. 800 million euros.800 million. This could represent a year-on-year growth of over 10% in 2024.
Investment is expected to recover in the office segment, which could account for 46% of the total, followed by hotels, with 30%. However, another 1 billion euros could be added to this forecast figure, relating to transactions that are currently on hold but could be concluded by the end of the year, as well as the usual off-market operations.
