CBRE Registers the Highest Investment Volume in Commercial Real Estate in a Semester in Portugal
The real estate sector in Portugal maintains a high activity pace, surpassing even the most optimistic market predictions.
CBRE's analysis of the first half of activity in Portugal, shows that the stable interest rates, at historically low levels, ensures a high global liquidity, part of which is being directed to the real estate market at levels never recorded before. In the Portuguese domestic market, the strong fundamentals of the real estate market, namely the lack of office supply considering the high demand and the consequent rise of the rents, reinforce the attractiveness of the sector.
The first six months of 2018 registered the highest investment volume in commercial real estate ever observed in a single semester in Portugal, which thereby set the expectation for a new annual record.
In the first half of the year, a total amount of 1,400 million euros was invested in commercial real estate, for a total of 23 transactions. The first half of the year is particularly relevant since it includes three major transaction in the Top 10 of the highest transactions ever made in Portugal (determined by CBRE since 2003). the three deals include - Blackstone's portfolio, which contained Forum Montijo, Forum Sintra and Sintra Retail Park; the Dolce Vita Tejo; and the Lagoas Park.
Lagoas Park, located in the municipality of Oeiras, is considered the best business park in Portugal and was acquired by the North American investment fund Kildare. The transaction totalling approximately 375 million euros, included 13 office buildings, a commercial gallery, a gym, school, 4-star hotel with a conference centre, as well as a public car park.
The total investment in shopping centres amounted to 650 million euros in the first half, a total of four shopping centres which include the three mentioned above, as well as, SerraShopping.
Thus, in the first half of 2018, retail assets accounted for a share of 57% of the total investment and offices 37%. The source of the capital is almost exclusively international with a relevant share from the French market, of 46%.
Another 11 shopping centres are currently being marketed or will be soon placed on the market. Presumably not all of the operations will be completed this year. CBRE expects that 2018 will close with approximately 1,400 million euros of investment in the sector, clearly a historical record. CBRE estimates that the investment volume will thus exceed 3,000 million euros this year, reaching a new record number of 3,400 million, after a record high of 2,200 million euros last year.
The yield rate remained stable in all sectors: 4.5% in office and high street assets (gross yield), 4.75% in the shopping centres (net yield) and 6.5% in logistics (gross yield). We anticipate a compression of 25 basis points in some sectors by year end, however, the higher valuation of the assets should result from an increase in rents.
Investment in commercial real estate income surpasses all our expectations and reflects the preservation of a high global liquidity and the prospect of a significant increase in rental values in Portugal.
Despite a generalized supply shortage, the office sector continues to remain extremely interesting in terms of market captivation. In the first half of 2018, 83,000 sqm were occupied in Lisbon and 43,500 sqm in Porto, representing increases of 6% and 40% respectively, when compared with the same period last year. The main occupiers are outsourced service providers (including shared service centres and contact centres) and information technology, as well as occupiers of flexible spaces (operators, co-working spaces and company accelerators or incubators).
The growth in the supply of flexible spaces is one of the main trends in the office market and is reflected in both the creation of new companies dedicated to this particular business area and the expansion of those already present in the market, also permitting the entrance of international players. In the first half of 2018, flexible spaces accounted for 14% of the office space occupied in Lisbon.
Demand remains quite robust and new offices that are being placed on the market are quickly occupied. In many cases the buildings are totally leased even before the completion of the construction works. This gap between supply and demand of office spaces is reflected in an upward pressure on prime rents, which increased 2.5% in Lisbon and 11% in Porto in the first half of the year to 20.5 € /sqm/month and 15.5 €/sqm/month, respectively.
In Lisbon, although there is a significant volume of projects in the pipeline (under consideration or licensing), the office area currently under construction is low, therefore the shortage of available supply will prevail until 2020. On the contrary, in Porto, the stock under construction is more significant, it is estimated that approximately 80,000 sqm will be completed in 2019, 25% of which are already committed. Customizing projects based on the needs of the occupant (built-to-suit) and the options of pre-lease contracts (prior to the completion of the building works) will become even more frequent.