Portuguese Real Estate Market in the First Half of 2017
A CBRE’s Research
CBRE highlights the continuation of a very positive momentum in the Portuguese real estate sector in the first half of 2017.
In the analysis made by the Research Department of CBRE it was possible to verify that the investment reached in the first six months of the current year and the assets that are expected to enter the market raise the closing expectations of the year, with values over two billion euros (50% up comparing to the last year and a similar figure to the record of two years ago) with the prospect of reaching a new historical record, close to three billion euros.
The national investment represented only 10% of the volume of commercial real estate investment in the first half of this year although accounting for 41% of the total number of transactions.
In the office market, given the time required to build a new building, the scarcity of quality spaces will remain a problem in the next two years. Only 10.800 sq m will reach the market in 2017 and, considering the projects under construction, only 11.000 sq m will be available in 2018, at the Torre de Lisboa (Fontes Pereira de Melo 41) and at Espaço 7 Rios (in Lisbon, Portugal).
In the shopping centers the openings of new ventures have been sporadic. In the first half of the year there was not any shopping opening or a new venture; However, until the end of the year will be inaugurated three new projects – Mar Shopping Algarve, Designer Outlet Algarve and Évora Shopping - with a total area of 94.100 sq m
The global numbers from Portuguese real estate sector, in the first half of the year, are very positive, showing an evolution that has contributed to an outline of confidence, as a consequence of the country’s economic recovery trajectory.
In the commercial real estate investment market a billion euros were raised in the country, a figure very much in line with the one observed in the same period from last year, and a total of 22 transactions.
This value of investment was launched by Blackstone’s sale of Logicor - the European leader in the logistics sector - to China Investment Corporation, a transaction comprising 16 properties in Portugal. Other relevant businesses in this period included the sale of two shopping centers - Forum Viseu and Forum Coimbra – to the South African REIT Lodestone, as well as the sale of Vila do Conde Nassica Outlet to Via Outlets, which also is an integrated operation in a European portfolio.
Also worthy of a mention is the sale of a large real estate portfolio owned by the insurance company Tranquilidade, and made by commercial income assets, as well as other properties for rehabilitation or conversion for other uses.
There is currently a significant volume of assets under negotiation or expected to be marketed soon, including two shopping center portfolios with several office buildings, as well as many other stand-alone offices, logistics, supermarkets, hotels and shopping center assets.
Contrary to the shared expectations in the beginning of the year, when ten years ago public debt interest rates surpassed 4%, CBRE shows a compression of yield rates in the first half. In the offices sector there was a reduction of 20 basis points (b.p) in CBD1 to 4.8%. In retail, prime shopping centers maintained the rate of return at 5% while secondary prime centers and good secondary centers recorded declines of 25 b.p. to 5.25% and 6.5%, respectively. As for Lisbon’s high street retail there was also a drop of 25 b.p., to 4.75%. The profitability rate of logistics warehouses remained at 6.5% in this first half of 2017.
Still with regard to investment but in real estate for promotion, we continue to watch the transaction of several buildings for rehabilitation, mainly in Lisbon and Oporto, destined to the residential and tourist markets. However, in the first half of the year, we showed the first transactions of large dimension for the construction of projects built from zero.
In particular, the acquisition, in Lisbon, of Lote 1.10 at Parque das Nações with 40.000 sq m of gross building area, for the development of a hotel unit, an office building and another 40.000 sq m land for residential use in Campolide.
In Oporto we highlight the acquisition by the Saudi investment fund MEFIC Capital, together with the English real estate asset management company Round Hill Capital of a land with a constructive potential of 78.000 sq m (including a mixed use project including housing, student accommodation, hotel, offices and commercial spaces). Other investments in large sites are expected until the end of the year.
The occupiers market has also registered interesting levels. In the office sector, 77.425 sq m were occupied in Lisbon from January to June, a similar area to the one registered in the same period of 2016, and 16% above the half-year average of the last ten years.
The main business deals with office changes, motive for 62% of the businesses verified in the semester (as leverage of expansion or new company in the market). A special note for the lease deals with the Law Firm Uría Menéndez Proença de Carvalho (5.300 sq m) and Bankinter (3.100 sq m), both for the Marquês de Pombal Square (CBD1). Abreu Advogados also established itself at the end of the semester (5.100 sq m) in a recently completed headquarters buildings is Santa Apolónia (Lisbon’s historical center).
At the end of the first half remodeling works were planned in four buildings: three located in CBD1 (Barata Salgueiro 37, Miroir and Marquês de Pombal 14) and another in the Área de Expansão (Espaço 7 Rios), a total of 19.200 sq m. The works on the CBD1 buildings should be completed by the end of the year, although - due to current lease agreements - only 10.800 sq m will be available for lease. These will be the only new/refurbished spaces available in 2017, as the other buildings scheduled for completion this year are tailor-made projects with previously negotiated leases.
In the retail market there is still the opening of new stores, both in Lisbon and Oporto, with a greater dominance of food and beverage sector units, driven by the continuous growth of the tourism sector.
There are a number of expansion projects that have been developed and renovated commercial areas already established. In the first half of the year were concluded the renovation works of the leisure areas in Nosso Shopping (Vila Real), including the food court, leisure areas and a specially-designed play area for children. Until the end of the year the expansion of the NorteShopping area will begin, as will the remodeling works at
Alameda Shop& Spot (Oporto) and Alma Shopping (Coimbra). Also this year should begin the construction of the retail park in Estoril with around 8.000 sq m, is the only new commercial venture planned for 2018.
In the warehouse and logistics sector of greater Lisbon, 98.200 sq m were occupied in the first six months of 2017. Like the office sector, the occupancy level was the same as in the same period of last year, but 18% above the half-yearly average of the last 10 years. The main business included the acquisition and occupation of a logistic warehouse in Palmela by LusoAlimentos (19.000 sq m), a lease to Sonae Group (14.000 sq m) in Cartaxo and two leases by a national distribution group in Palmela and Azambuja.
The development of new warehouse and logistics projects has also been very limited. A new 9.300 sq m building was completed at the end of the first semester of Log Place Póvoa de Santa Iria, and was immediately occupied by Logic. There is no new speculative development under construction in greater Lisbon. Faced with a shortage of new supply, the availability rate in the city continued to decline, falling three percentage points since the beginning of the year, to 16%. In the prime logistics axis Vila Nova da Rainha – Azambuja, the availability rate is only of 2%.
Regarding prime rents, during the first half of 2017 there was a 3% increase in office rent in the CBD1, to 19 €/ sq m/ month, after remaining stable over the last six years. In Lisbon’s street trade the increase was more significant, from 24% to 130 €/ sq m/ month on Rua Garrett. In Oporto, at Rua de Santa Catarina, it remained at 45 €/ sq m/ month. In the shopping centers, prime rent continued at 95 €/ sq m/ month and in retail parks increased by 10€/ sq m/ month. In the prime logistics assets there were also no changes in these six months.