Can Portugal’s real estate market meet foreign demand?

Around €3.35 billion was invested in Portuguese commercial real estate in 2018, a 76 percent rise on 2017 and more than double the amount invested in each of the previous four years.

The vast majority of investment is coming from overseas; 15 different nationalities, led by the French, accounted for 91 percent of capital, attracted by Portugal’s growing economic prosperity and stability – and the growing presence of multinational occupiers creating a thriving leasing market.

Big tech giants such as Microsoft and Google, which opened its programming school in Lisbon, are being joined by the digital outposts of manufacturers and financial services firms. 

German car manufacturer Daimler now has a digital delivery hub in Lisbon, while Volkswagen last year opened its new Software Development Centre in the Portuguese capital. French bank BNP Paribas recently took 15,000 square meters in Porto’s Urbo business centre, proof that the country’s second city is also on the radar of new occupiers.

More development will be needed across all sectors in 2019 to meet rising demand, says Maria Empis, strategy and research director for JLL Portugal. “Portugal is now faced with a lack of quality real estate to offer international investors.

“The arrival of more international occupiers comes alongside increased investment by international investors. Satisfying demand from both investors and occupiers is a real challenge.”

Improving supply

The disconnect is already reflected in Portugal’s office market, where demand is growing for large, high-quality spaces, particularly among shared technology services and multinational fintech firms. In 2018, take-up of office space was up 24 percent year-on-year to 206,000 square meters and is at its highest since 2008, according to research by JLL.

Redevelopment provides one option, says Antonio Palma, consultant at JLL Portugal.

“Properties in need of renewal are a viable option – and that applies across all sectors, from office and retail to hotels and residential,” he says. “While investing in central Lisbon means competition, there are still good opportunities for property development further out of town.”

Across the capital, there are more than 7,000 buildings in need of refurbishment.

“Redevelopment becomes a sensible route for investors in all sectors,” says Empis.

Further out of town, more large-scale office schemes are likely this year, she adds, with more than 561,000 square meters of office space in the pipeline between now and 2023.

Opening up new sectors

More investment from abroad has improved market liquidity and the market is more transparent across all sectors, says Empis.

“The arrival of institutional, core-plus capital could open up alternative sectors.”

Deals such as AXA Investment Manager’s purchase of the Dolce Vita Tejo retail mall from U.S. hedge fund Baupost last year are an example of a changing investor profile in the country. Furthermore, the country’s new REIT regime, SIGI, is a positive step for the market as it heads into an election year.

“Government elections can of course impact on investment if major reforms emerge,” says Palma. “Investors and companies can become hesitant to make moves until they know the outcome.

However, we see little risk in terms of major disruption over the coming year.”

Portugal’s real estate market and wider economy – GDP growth was 2.1 percent in 2018 – have the potential to rival its European peers, says Empis.

“The talent pool is there, we just need to make sure that the supply of real estate matches international demand.”