Portuguese Global Overview Q1 2023
The Portuguese real estate market experienced significant growth in 2022, with an investment of approximately €3 billion, representing a 50% increase compared to 2021. The logistics and hospitality sectors witnessed record investments, with capital flows exceeding €700 million and €1 billion, respectively. Additionally, housing sales reached a record high with approximately 170,000 units sold. Portugal concluded 2022 with the second highest economic growth in Europe, at 6.75%, and is expected to remain among the top three countries this year.
For 2023, the volume of real estate investment is projected to surpass €3 billion, although prevailing uncertainty is anticipated. Inflation is forecasted to decrease from 8.1% in 2022 to 5.5% in 2023, and the Bank of Portugal predicts a GDP growth rate of 1.8%. During the first quarter of 2023, commercial real estate investment totaled €240 million. Prime yields have increased due to rising interest rates driven by the European Central Bank and are expected to reach levels comparable to those observed in 2017.
In terms of asset class prospects for 2023, the Retail sector led the investment in commercial real estate during the first quarter, driven by a €150 million transaction in the supermarket segment. New business parks openings have triggered a slight rise in prime retail parks rents at €11.5 sq.m./month. High Street prime rents in Lisbon are expected to remain stable in 2023 at €115 sq.m./month, as are Shopping centre’s across the country at €102.5 sq.m./month.
The Office market witnessed a €50 million investment in the first quarter of 2023, with prime yields of 4.5%. The sector is expected to maintain its strength, with an estimated occupancy volume of approximately 200,000 sq.m. in Lisbon and 60,000 sq.m. in Porto. Prime rents are expected to stand at €30 sq.m/month in Lisbon and €20 sq.m./month in Porto. The main drivers of the sector this year will continue to be the demand for offices from international companies and flexible spaces due to new ways of working.
The Logistics sector has observed an increase in prime yields up to 6%. A total take-up volume of around 400,000 sq.m. is expected in 2023, primarily propelled by e-commerce growth, reorganization strategies, company expansions, and local production relocation. Prime rents are anticipated to rise by 5% to 10%, reaching €5/sq.m./month.
Hospitality has performed relatively well, driven by substantial supply growth and favorable urban locations. International overnight stays have significantly increased, approaching levels witnessed in 2019. RevPAR by region followed a similar trend, with the highest increase in Lisbon’s metropolitan area (+142%), but still below 2019 levels. Hotels are expected to continue to raise prices, due to their focus on ARR (Average Room Rates). On the other hand, stock in 2023 is expected to continue growing, with the opening of new hotels with 1,326 new rooms in Porto and 1,351 in Lisbon.
In the Residential sector, there is an expected surge in rental demand due to rising interest rates, limited mortgage access, and price increases. Throughout 2023, a continuous rise in sell prices in spite of the slowdown in market growth will divert the attention from potential buyers towards the rental market leading to an increase in leases, with expectations of a double-digit growth rate this year.