Another year on in the real estate cycle, and the main change in the thriving Lisbon market is that assets have become more expensive. “Equity continues to be available from a wide variety of sources, both domestic and cross-border, and it is targeting the spectrum of investing strategies,” observes a local broker. As well as offices, “there are plenty of asset classes to invest in, including hotels and residential”, says an investment manager which is expanding into Iberia. “We do like investments such as hotels in southern Iberia, Porto and Lisbon that benefit from tourism.” Even retail attracts interest in this outward-facing corner of Europe. “In Portugal, retail is still going strong,” the broker says. “This year alone we have registered 400 new leases of units, a lot of it food and beverage which is also related to tourism, but fashion and other uses too. Rental growth is still there for very prime locations and prime shopping centres, but secondary is clearly more difficult.” Portugal is also riding relatively high in Europe in terms of its economy, with GDP forecast at 1.6 percent for 2020 while unemployment continues to fall from its 18 percent 2012 peak to under 7 percent, which is also boosting spending. For investors in core offices, the challenge is finding stock. Insurance companies and German funds are especially competitive and have pushed yields down from 4.5 percent to 4 percent.
Some wonder if the city’s progress towards nearly full employment will make hiring more difficult at some point for the many companies that have set up service and call centres and want to expand, or for future FDI. But even with 10 percent rental growth for class A space in the last 12 months, from €240 per square metre per annum to €264 and with €288 in sight, occupier costs are still cheap compared with other cities, and the workforce is young, international and well-educated. These attractions underpin the conviction of the Spanish REITs and core-plus/value-add funds that are buying repurposing and build-to-core opportunities. There are no large sites available in the city after the sale of the fair ground site at Entrecampos to a Chinese-backed insurer. And the Expo Parque das Nações district is almost fully built, “so we are starting to see development on the fringe of Expo, spilling over”, says a local agent. Government approval of ‘SIGIs’, Portugal’s REITs, and confirmation of funding to expand the city’s airport and construct a second are further pluses. (Content from PWC emerging trends in real estate Europe 2020)