"Real estate market: Analysis and forecast by segments until2024."

It is expected that2024 will be comparable to2023 in terms of real estate activity, where the "cross-cutting lack of supply, trend towards increasing prices for premium rentals, and support for housing prices" will continue to be felt, according to Patricia Baran, Head of Residential Real Estate at JLL. According to the expert, there are sectors that are of particular interest to investors and developers due to being in a specific phase of the cycle, including alternative segments. Overall, Portugal remains on the international radar, including traditional real estate segments, both in terms of employment and investments.

Geopolitical and macroeconomic situation

The geopolitical and macroeconomic situation has had an "inevitable impact" on the real estate market in Portugal in 2023, with investment levels in commercial real estate and office occupancy "significantly decreasing compared to 2022," reports JLL in its annual activity forecasts. The consulting firm's forecasts indicate transactions in the range of 1.8 to 2 billion euros in the commercial real estate market, and about 100,000 square meters of office space occupied in Lisbon during 2023, which corresponds to a decrease of 45% and 63% respectively. "The residential segment has also been affected, although the decline is more limited, with an expected reduction in sales volume of 16%, down to approximately 27 billion euros in transactions in 2023," the press release sent to the editorial office states.

Investments

2023: A year marked by the execution of small and medium-sized deals, as well as investor caution due to uncertainty in the international arena. A downward trend is observed across all major European markets. The volume of transactions in the commercial real estate market is expected to range from 1.8 to 2 billion euros in 2023, which is 45% less than in 2022. It is anticipated that about 45% of the amount invested in 2023 will be domestic, while foreign investments remain in the spotlight.

2024: Forecasts remain extremely cautious, as many challenges persist: macroeconomic uncertainty, although there are some positive signs of decreasing inflation and interest rates, as well as two conflicts - Ukraine/Russia and Israel/Hamas, and elections in several countries, including Portugal, which create instability and uncertainty. Thus, it is expected that 2024 will be challenging and the volume of investments will be modest compared to previous years, potentially amounting to between 1.5 and 2 billion euros.

Offices

2023: Occupancy is low due to the small number of large transactions. Companies are also assessing their space needs in the context of new work models. Office occupancy in Lisbon will amount to 100,000 square meters, which is 60% less than in 2022. The average occupied area was about 850 square meters, which is 37% less than in 2022, highlighting the lack of large deals. Prestigious rental prices reach 28 euros per square meter due to limited high-quality supply and in accordance with sustainability requirements. The share of vacant spaces has increased by about 2 percentage points and stands at around 10.3% (Q3 2023), mainly due to vacant spaces in low-quality offices and less functional locations.

In 2024, demand will increasingly focus on high-quality offices that meet sustainability requirements. Employment levels are expected to remain average compared to recent years, while prestigious rental prices will continue to rise as supply that meets demand enters the market at a slow pace.

Retail trade

2023: The revival of tourism, especially in urban areas, and the increase in private consumption have positively impacted occupancy and investment in retail real estate. Premium shopping centers have shown strong performance in terms of occupancy, foot traffic, and sales, which are expected to grow by 10%. Supermarkets and standalone grocery stores are experiencing a trend of operator expansion and high demand for investments. Retail spaces on the streets are also seeing high demand for rent, particularly in areas with significant tourist traffic.

In all market segments, we see new retailers entering the Portuguese market, some of which have very ambitious growth plans. There is a trend of increasing premium rents: 140 euros per square meter on the street, 130 euros per square meter in shopping centers, and 12 euros per square meter in retail parks. In supermarkets, the rent for food products is 13 euros per square meter, while for non-food items it is 11 euros per square meter.

2024: Supermarkets and premium shopping streets will be bustling with activity. Prestigious shopping centers will continue to perform well, with some shifting their focus towards experiences and entertainment. New retailers will keep entering the national market, suggesting an increase in premium rents.

Industry and logistics

2023: This is a market with great growth potential, but the level of employment is limited due to a lack of supply that meets demand requirements.

2024: Portugal is in the spotlight for data center operators due to the still available capacity of our electrical grid, the presence of transatlantic cables in our coastal area, and the enhanced preparation of Portugal in the field of technological education. In addition to data centers, there is a growing and diverse demand for sub-segments such as large-scale logistics, self-storage, last mile, light industry, and small business units. Prestigious rental prices are also on the rise.

Hotel industry

2023: Real estate in the hotel sector is one of the most attractive sectors for investment, driven by the revival of tourism and record operational performance. Portuguese hotels recorded 68.5 million overnight stays (data as of September 2023), which represents a 23% increase compared to the same period in 2022 and an 11% increase compared to 2019. RevPAR (revenue per available room) in Lisbon reached a record level of 127 euros, 29% higher than in 2022. The growth in RevPAR is mainly due to an increase in the average daily rate, indicating a more qualified tourist market. Interest in this sector is also confirmed by 61 new hotel openings in Portugal in 2023.

2024: The hotel sector should remain highly attractive to investors; however, in light of strong operational performance, hotel owners are no longer in a hurry to sell their assets, which means that the gap in price expectations between sellers and buyers persists. It is expected that 55 new hotels will open in 2024 and another 34 in 2025.

Housing

2023: Despite the expected decline in housing sales due to rising borrowing costs and reduced purchasing power of families, there remains a mismatch between strong demand and a lack of supply, which supports prices. It is anticipated that the volume of residential property sales will be around 27 billion euros in 2023, which is 16% less than in 2022. Prices are rising more slowly, but there has been a year-on-year increase of 10% up to September (IPR Ci). The supply continues to be significantly lower than demand: over the past decade, the average annual number of completed apartments has been about 13,500, compared to an average annual sales volume of around 104,500 units, meaning that 8 apartments are sold for every 1 produced.

2024: Housing sales will continue to face pressure due to higher borrowing costs resulting from interest rate levels. However, demand remains strong, especially on an international level, and while the demand for rentals persists. Housing prices will continue to remain stable due to a supply shortage, particularly concerning rental prices.

Alternatives

Alternative segments are currently the most attractive for investors worldwide, but the production of such assets in Portugal still significantly lags behind the needs of the rental and investment market. There is a clear shortage of rental homes. Therefore, efforts continue to create rental supply, such as "Build-to-Rent" schemes, but doubts remain about the impact of the "Maior Habitação" program on addressing housing access issues. The lack of supply is felt in specialized housing, such as student dormitories and housing for the elderly. In addition to these, healthcare and science-oriented institutions are also on the radar of national and international investors.