Colliers Forecast: Real estate expectations for Spain and Portugal in 2024.

The year 2024 will see a moderate recovery in investment volumes. We have prepared Colliers' forecasts and recommendations for you to read in our blog article, where Mikel Echavarren and Pedro Valente share their views on the outlook for the Spanish real estate market in 2024.

The year 2023, which has just ended, was marked by uncertainty. Predicting the future of the market is really difficult without analyzing the previous situation. What is the position of Spain compared to other countries in the real estate market? And what is happening in Portugal?

M.E.

Unlike the European investment market, which has declined by almost 70%, Spain has only declined by 50% by Q3 2023, and it appears that data towards the end of the year will slow this decline, mainly due to the resilience of the vacation hotel market. In addition to this difference, it is worth noting that, unlike the UK investment market where prices quickly corrected, in Spain property owners have adopted a wait-and-see tactic that may further delay the market's recovery. In addition, Spain offers significant opportunities in alternative asset segments compared to other countries, such as data centers, where there are broad prospects for an already mature market in the FLAP region.

P.W.

In Portugal, as in Spain, the market declined by "only" 50%. The key role was played by the hotel sector and retail, which, interestingly, continues to record some deals. It seems that, as a market severely affected by the pandemic in terms of investment, the number of available investors to buy in retail has been low, leading to a faster price correction and an earlier start of deals compared to other markets. Another characteristic of the Iberian Peninsula is its resistance to price corrections, especially in the office and logistics segments, which has a negative impact on transaction volumes.

What trends will shape the real estate investment market in 2024?

M.E.

In 2024, the real estate investment market will reach its low point with respect to the decline in asset values and, consequently, there will be some recovery in the second half of the year when the European Central Bank starts to reduce interest rates. However, this recovery in value will be very gradual, although an increase in investment momentum will be visible due to these expectations as well as increased debt maturity pressures. We must be very careful that other potential risks do not harm this recovery, such as a downgrade of Spain's credit rating due to excessive spending, political uncertainty or the application of populist measures to the economy. In any case, 2024 could be the beginning of a market recovery that we do not expect to stabilize until 2026.

P.W.

In Portugal we will have elections in March, which raises many doubts about what housing policies will be implemented. We expect a very similar situation to Spain and a recovery in real estate investment with lower interest rates. Obviously, hotels will remain in the leading position in the real estate investment market. The residential sector, especially new construction, will capture the interest of investors as supply and demand are in imbalance.

When will the long-awaited activation of real estate investing happen?

M.E.

The activation of the transaction market will be linked to a decrease in yield requirements for government bonds and a reduction in inflation. Although a decrease in interest rates of 100-125 basis points is forecasted for 2024, its impact on real estate yields will be positive but more moderate, around 25-50 basis points. Therefore, we anticipate an increase in investment dynamism in the second half of 2024 when the ECB lowers interest rates. However, a full recovery to 2022 levels is not expected in the next two years.

P.W.

In theory, the recovery in Portugal is expected to begin in the first half of 2024, due to a decrease in interest rates. However, in reality, some investors may close significant deals early before this period, anticipating future opportunities. Typically, there is a contagion effect in Portugal - if one investor starts closing large deals in the market, others tend to follow suit.

Which business segments will be most affected, and which will require less time to recover?

M.E.

The segments of the real estate market that we believe will exhibit the most active behavior include the hotel sector, logistics, flexible rental housing formats, as well as alternative sectors such as hospitals, clinics, and data centers. On the other hand, the coming year is likely to face significant challenges in terms of investments in the development of rental housing, the sale of portfolios of these assets, offices, and shopping centers.

P.W.

In Portugal, as in the rest of the world, the sector most affected is offices due to the uncertainty surrounding them after the pandemic. On the other hand, the hotel sector is significantly boosting investments thanks to its strong fundamentals. Alternative assets (student housing, healthcare, etc.) will be significant due to the relative novelty of these products in the national market and the ensured demand. We also highlight the development of new residential buildings due to the lack of supply.

What recommendations do you have for investors in 2024?

M.E.

In general, recommendations from real estate consultants should always be viewed critically, as we operate in the realm of transactions. However, in an effort to be as objective as possible, we would advise investors to make early purchasing decisions in 2024, assuming that yields will compress faster than expected a few months ago. Specifically, we believe that starting investment analysis in the first quarter, which can be closed before summer, will be favorable, likely preceding a collective investment movement by about six months, where competition will logically be more intense.

P.W.

The real estate investment market in Portugal behaved almost in parallel with Spain in 2023, experiencing a decline in investment volumes of more than 50% compared to 2022, with the hotel sector leading among the segments. Unlike Spain, retail showed good dynamics, and we expect the same in 2024. Colliers Portugal's recommendation for investors in this new year is to keep an eye on the most interesting markets, namely hotels, retail, housing, and healthcare, and to act quickly to find the best opportunities, considering that yields will be compressing much faster than expected just a few weeks ago.