The first session of the SIL conference cycle, which took place from 10 to 12 April in Lisbon, focused on the impact of the new housing models. The urgency of adapting the residential market to social and economic changes was one of the key ideas shared by Maria Empis, Head of Residential at JLL Portugal, in the session ‘The living market from the investor's point of view’. In her opinion, the current housing model is still out of step with the needs of the population - and it's time to act. ‘It's essential to change the housing paradigm, which hasn't kept pace with the demographic and socio-economic changes the world is going through,’ she emphasised.
The growing mobility of people, combined with the transformation of households, means that the concept of housing must be rethought. ‘Mobility means that houses have to keep up with the different stages of our lives’. Today, for example, households are getting smaller and smaller, so ‘we need to have much more housing that is adjusted to these new family structures. Thirty years ago, households were bigger. Now allotments need to be adapted to the current reality.’ The challenge is also to ensure that the property sector responds not only to housing needs, but also to the demands of the modern consumer: ‘the focus on experience must also increasingly be brought to real estate’.
Maria Empis also spoke about Build to Rent, ‘an alternative model that Portugal urgently needs’, expressing her expectations for the launch of the first project of its kind in the country, located in Alameda das Antas, near the Dragão Stadium and close to Porto's tourist centre.
During the first round table discussion, moderated by Alexandre Lima, Director of Iberian Property, Fernando Valcarcel Sanchez, Investment & Asset Manager - Iberia, from M&G Real Estate, presented the global manager's vision for the sector and detailed the projects underway in the Portuguese capital. At the moment, ‘we are strongly focussed on the living sector at a global level. We have Build to Rent projects in Spain - some still under development, others already in operation - and here in Lisbon, in addition to office assets, hypermarkets and other asset classes, we also have significant investments,’ he said.
One of the most concrete examples of this is in Olaias, where the group has a project in the final stages: 'a student residence, which will be handed over to us this summer and is scheduled to open in September. On the same site, we will also have a flex living unit’. The global property investment manager, of British origin, has invested 35 million euros in the construction of a student residence. It should be noted that they have also acquired a 46 million euro flexible housing project in Lisbon. This project will be operated ‘with an aparthotel licence’ and is designed to offer a hybrid response: ‘around 85% of the offer will be for medium stays, with 15% reserved for short stays,’ Fernando Valcarcel explained.
For M&G, Lisbon represents a city with strong potential and where the experience has been positive. ‘It's a city we like very much, where we've been working enthusiastically and where we've always been received with great friendliness.’ The close connection with the UK, where the market is more mature, has been decisive. ‘They give us a lot of support and guidance, but then you have to adapt everything locally, with experts on the ground who tell us: "this idea, this concept or these parameters that you want to fulfil work like this, like this, here in Portugal". So, yes, it's possible to replicate - and, in fact, we're already doing it successfully.’
Currently, ‘a young person can be here and six months later be living in London. That person needs a place where they can live comfortably - preferably already furnished, with wifi, with all the services included, where they can come and go easily and flexibly. That's what we're trying to support,’ emphasised Fernando Valcarcel Sanchez, adding that that's the spirit behind the investment in Olaias, both in the student residence and in the flex living project.
‘The fundamentals are the key to explaining why the residence is so important’
Miguel Pereira Pinto, Director of Quest Capital, emphasised that ‘fundamentals are the key to explaining why residential is so important. Residential is not just an attractive sector - it's a sector that everyone wants to be in, or should want to be in’. According to him, there is demand in all segments and it is urgent that ‘we know how to respond to this demand. To this end, I believe that the size of projects is a key factor, because it brings value.’
This is where scale takes centre stage. ‘The developers who have been developing small and medium-scale projects - and who have been the real driving force behind supply - are the same ones who are creating homes for people.’ However, he adds, ‘the scale we see growing today comes above all from institutional capital. And in order to attract this capital, scale is essential’. That same scale, however, ‘can hardly be achieved in city centres. We're not talking about responding to a limited or elitist demand - in my view, we're talking about responding to the demand of the middle class, the upper middle class and the real middle class. Localisation is therefore absolutely crucial’.
The answer, he believes, lies in taking a fresh look at the city and its limits, because ‘we can no longer think of building only in the city centre, when construction and land costs are currently a major challenge. In order to meet this demand, we need to look at more peripheral areas.’ In his view, it's also essential to support infrastructure - to guarantee mobility between the urban centres and the outskirts, and vice versa. That's where it all starts.
In this sense, for Miguel Pereira Pinto, there are two clear avenues of response: ‘on the one hand, through scale, with well-integrated secondary locations; on the other, through alternative housing models - innovative formats that don't yet exist on the market, which use land that wasn't originally intended for residential use, and which, for this reason, hasn't been pressurised so much in terms of prices. It is these solutions that I believe are the future for the sector.’
New living formats - the national vision
In a context of product scarcity and high competition, operators face increasingly tight margins. Betting on experience and differentiation has emerged as a possible way to sustain operations and win over new audiences.
In the view of João Pita, Director of Real Estate Investments at Ando Living, ‘the issue of the effort rate is largely a reflection of the current situation in the property market. In other words, there isn't product available in all asset classes, which makes it difficult. One of the big challenges in this business is to raise product, grow the brand and, in essence, find opportunities’.
Even so, there are positive signs. ‘Added to this - and this is the positive part of the story - is the performance, which is not exclusive to serviced apartments: in other asset classes, operating performance has also been excellent. Portugal has managed to attract a growing number of international players interested in entering the market. This often leads to fierce competition for new assets and product. This pressure, in practice, ends up benefiting the investor or owner, but translates into an increase in the effort rate for the operation.’
And this has a direct impact on operators. ‘Basically, any operator wants to guarantee an effort rate that allows them to cover their costs, sustain their structure and maintain a profit margin. However, that margin has been squeezed, especially in our market, due to strong competition and the need to secure product,’ emphasises João Pita. Differentiation, he argues, begins with the experience: ‘The concept of experience and the added value of the amenities are directly reflected in the profitability of the operation. In other words, the very concept of Ando Living is based on the premise that by adding an amenities component to the traditional experience of a serviced apartment, you are effectively boosting revenue and the operation.’
The solidity of the project, however, is also based on other pillars: ‘What sustains all of this and gives it robustness is the investment in the brand and its positioning. This investment in marketing has to happen downstream. And nowadays, this effort is continually scrutinised through reviews and all the almost direct feedback that customers provide,’ adds João Pita.
Ana Marques, Operations Manager - Iberia at Nido Living, also recognises the challenges of financial balance in a demanding operating model. ‘The effort rate is always a very particular factor. In terms of the operating floor of our residences, we offer an all-inclusive model - in other words, residents have access to a gym, shared kitchen, among other services.’ This model, she admits, has a direct impact on the operation. ‘This model naturally leads us to an ‘all-inclusive’ price, which ends up slightly increasing the operational burden of managing the building. This is because we have reception, maintenance and security teams, among other permanent services - and all these elements represent a significant burden on our gross revenue.’
‘Our residents choose us for our brand positioning. It's an investment that we make and that we believe is essential’
Despite this, she believes the investment is worth it. ‘We see the amenities as a real added value. It's an investment that we consider to be structural and an integral part of the project.’ Experience, Ana Marques emphasised, is essential for a public that is looking for more than accommodation: ‘Students aren't just looking for a place to sleep - they're looking for experiences. In Portugal, parents still have a very significant say in choosing where their child will stay. In the case of a European student, the reality is different: they are more independent and tend to look for residences in the city centre, due to their proximity and convenience. They want to experience the city, take advantage of everything it has to offer - and amenities contribute to this experience.’
António Silva, CEO of the BF Group, with a track record that began on the development side but now is mostly focused on the senior living and hospitality sectors, commented: ‘What we feel about the senior living sector - regardless of the various segments - is that it is indeed a growing trend, but also a major challenge: segmentation. Senior living is a world in itself. There's Independent Living, Assisted Living, and Assisted Living with Memory Care, a concept more geared towards monitoring neurodegenerative diseases, and a couple more you don't usually talk about.’ For António Silva, simple accommodation is no longer enough. ‘One of the main challenges is to guarantee the sustainability of the effort rate, both for internal and external operators. To do this, it's essential to invest in developing additional services. ‘Bread and butter’, so to speak - in other words, simple accommodation - is no longer enough. We need to inject value through new services, new amenities, even in this senior living segment.’
‘The focus must clearly be on service and differentiation’
In the group's residences, there is already a reinforcement in the offer of differentiating services. ‘In addition to the more traditional clinical services such as physiotherapy, neurology, psychiatry, psychology or podiatry, we already offer a wide range of services open to the outside world: beauty, hairdressing, wellness services, among others.’ The vision is clear: ‘All of this complements the base - the accommodation - with a range of differentiating features. The focus must clearly be on service and differentiation, in order to ensure that the operator is able to support these effort rates.’