Rising inflation and interest rates: real estate - which sector shines?

The real estate market continues to show resilience, but is not resilient to the current economic situation, defined by high inflation and rising interest rates. In truth, real estate market activity in Portugal in the first quarter of 2023 has proceeded at different speeds: while commercial investment, house sales and office employment have slowed, activity in logistics, retail and hospitality has flirted, surpassing the performance of the previous two years.

Housing:

The beginning of the year was characterized by a new decline in sales (by about 5% compared to the previous quarter), continuing a trend noticeable in 2022. A slight decrease in average prices' can also be observed'on housing in Lisbon (-3% to 4,200 euro/m2) and in Porto (-6% to 2,800 euro/m2). Despite the current conjuncture, demand, led by the Portuguese, continues to exceed supply;

Offices:

Lisbon saw around 20,000m2 occupied during the quarter, less than half the average over the last five years. In Porto, activity amounted to around 8,000 m2, 41% below the average of the last five years. The trend of slowing office occupancy is also evident in other European markets due to uncertainty;

Commercial real estate:

There were 240 million euros transferred in the first quarter of the year, 63% below the average for the same period of the last five years. Activity was characterized by the purchase''rentals. Forced leases on empty homes or rent ceilings can limit market activity and create uncertainty, forcing developers to delay or cancel projects," according to a press release sent to editors. The decline in office occupancy and home sales this quarter is not a surprise. It's a trend that began in the second half of 2022 and is natural in light of two factors: we're dealing with markets trading at historic levels and a deteriorating economic environment. Soaring interest rates, rising inflation and strict financing conditions are affecting families and companies that are the recipients of residential and office space," explains Joana Fonseca, Head of Department''strategic consulting and research company JLL.

Logistics:

In the first quarter of 2023, 214,000m2 was occupied, double the activity recorded in the last two years.

Retail:

Retail sales rose 1.6% in the first quarter (y-o-y), which had a "positive effect on shopping centers." Rents in retail premises "reflect inflation". Trade also showed momentum in both Lisbon and Porto (where a recently opened''Mercado do Bolan), noted "good sales dynamics and demand for new rooms".

The hotel industry:

The number of visitors and overnight stays increased by 14% compared to the first quarter of 2019 to 5.1 million and 12.5 million respectively. In both Lisbon and Porto, occupancy and accommodation prices are approaching 2019 levels. "This is still a sector worth working on, with the opening of three new five-star hotels (one in Faro and two in Porto) and two four-star hotels (in Lisbon)," it is indicated.

This quarter saw an increase in yields, growth in logistics rents and stability in offices and retail, while the residential segment saw a trend of slowing prices in the two main markets:''Lisbon and Porto. Regarding this, the head of strategic consulting and research at JLL believes that "real estate prices in terms of rents, prices or yields reflect the great resilience of this industry. The overall result is stable, and there are only minor adjustments in some segments, despite natural declines in occupancy and sales, as well as increased caution from investors and consumers. "

With regard to real estate market activity during 2023, Joana Fonseca is confident that "the segments most affected this quarter will accelerate, even with possible value adjustments. On the one hand, we already have signs of greater macroeconomic stability, with the confirmation of a slowdown