MARKETBEAT PORTUGAL SPRING 2016

Transcription

1 SPRING 216 MARKETBEAT PORTUGAL SPRING 216 A Cushman & Wakefield Research Publication

2 A Cushman & Wakefield Research Publication ECONOMY Following a third, less favourable, quarter the Portuguese economy returned to growth across the last 3 months of the year, making a positive contribution to GDP of around 1.6% across 215, its highest since 27. The Bank of Portugal s GDP forecasts for the next few years point to a modest continuation of such growth with a likely increase to 1.7% in 216 and 1.8% in 217 which reflects a downwards revision to the estimates forecasted last Spring. Bank of Portugal projections consider the main growth drivers to be the positive evolution of exports, cheaper finance fuelled by low interest rates and a higher level of domestic demand, driven by private household consumption and corporate investment. The downwards revision is essentially associated with the less favourable evolution of the world economy which will have a negative effect on exports. Domestic demand was one of drivers behind the growth of GDP, benefiting from job creation, low interest rates and falling oil prices. Although 215 is expected to see a 2.7% increase in private consumption, the following years are unlikely to be so positive, with growth estimates below 2%; 1.8% in 216 and 1.7% in 217. Public consumption, in 215, evolved by a scant.1%. This trend is unlikely to change in the following years with growth estimates of.3% and.1% in 216 and 217. The labour market continues to show signs of improvement. Following a first adjustment in 214, the unemployment rate was down yet again to 12.4%, in 215, and is expected to fall further in 216 and 217, to 11% and 1.4%, respectively. Inflation in 215 slightly improved the stagnation of the last few years. The Bank of Portugal estimates an end-of-year inflation rate of around.6%, increasing over the following years to 1.1% in 216 and 1.6% in 217. The Bank of Portugal s Winter forecasts do not include the government s new measures which, albeit still at their approval stage in parliament, have already been agreed with the European Union. They entail a reversal of the policy being followed over the last 4 years by the preceding government and will require a revision of the above referred to economic forecasts. Measures affecting the real estate sector, announced by the government in the state budget for 216, particularly include an increase of IMI (municipal property tax) on commercial real estate and the elimination of the exemption from IMI and IMT (municipal sales tax) on real estate investment funds and pension funds. While it is still early days to draw any conclusions on the measures announced for the real estate sector in Portugal, there are no doubts over the negative effect of the tax hike on property in terms of real estate investment activity. Private consumption may also witness a growth reversal, with its expected effect on the retail and logistics sectors and overall effect on the economy as a whole. 2

3 Notwithstanding, the projections of measures expected to have a positive impact on civil servants take-home pay, the penalising of private consumption with tax hikes on specific products, change in the VAT code, a tax hike on fuel and an increase on consumer finance may cancel out the positive effect on domestic demand expected from civil servants. The office space sector is also likely to be affected by the new budget measures. The business sector will be indirectly punished by the tax hike on fuel, penalising of the banking sector and non-confirmation of the previously announced expected reduction of IRC (corporate income tax). In short, forecasts on the evolution of the Portuguese economy might be affected by the reaction of households and the business sector to the announced tax and legislative changes, as well as by the future evolution of international markets and the world political and social order which is currently at serious risk. Although the real estate market is likely to be particularly penalised by the government s new measures, the European Union s continued implementation of a quantitative easing policy in conjunction with the growing appeal of European real estate assets may, to a certain extent, offset the harmful effect of the new domestic policy. ECONOMIC INDICATORS 2% 15% 1% 5% % -5% -1% * 216* 217* Private Consumption (1) Public Consumption (1) GDP (1) Unemployment Rate (2) Inflation (2) Source: INE; Bank of Portugal (December 15); Organisation for Economic Co-operation and Development (November 15) * Forecast (1) Annual Growth Rate (2) Current Rate 3

4 A Cushman & Wakefield Research Publication RETAIL An improving economy, across 215, helped to boost growing consumer confidence which, in turn, translated into higher private consumption. This was accompanied by good commercial performance across the year, also heavily influenced by the positive effect of tourist footfall. The fact that retail operators have gradually begun to revive their expansion plans is clearly visible in the more active search for and effective occupancy of commercial spaces. Unlike 214 when higher but feeble demand was concentrated on high street retail in Lisbon city centre and top-performing shopping centres demand in 215 was geared to other secondary locations in Lisbon and cities nationwide, in addition to a larger number of shopping centres. RETAIL SCHEMES - TOTAL OFFER Portugal had an overall 3.65 million sq.m of retail spaces, at the end of 215. Shopping centres are the most successful retail format with the largest slice of the cake at 2.6 million sq.m across 116 nationwide projects, albeit primarily concentrated in the urban hubs of Lisbon and Porto. Supply in this sector has already achieved maturity and future growth potential is therefore limited. As economic recovery has incentivised fresh development activities, the next few years are expected to witness the opening of two new retail spaces; Nova Arcada (Braga), with 67,5 sq.m anchored by an Ikea store and the Ikea Centre Algarve (Loulé) which is a mixed project comprising an Ikea store with 24, sq.m, a shopping centre with 42, sq.m and a factory outlet with 17, sq.m. CURRENT AND EXPECTED GLA BY REGION (SQ.M) - 214/216 Thousands of sq.m 1,2 1, 8 6 GLA Growth (thousands of sq.m) Total GLA (millions of sq.m) 4 2 North (excludes Greater Porto) Greater Porto Centre Greater Setúbal Lisboa Peninsula Current GLA Expected GLA South Islands * 217* 218* * Forecast GLA Growth (sq.m) Total GLA (sq.m).5. Taking advantage of changes in the law, which affect both leases and urban redevelopment, the growth potential for high street retail in Portugal, both in quantity and quality, is very high. Overall supply in Lisbon and Porto city centres was 17 thousand sq.m and 156 thousand sq.m at the end of 215, respectively, with vacancy rates of 9% for Lisbon and 4

5 TAKE-UP BY FORMAT FACTORY OUTLET 2% RETAIL PARK 1% HIGH STREET 23% STAND ALONE 3% SHOPPING CENTRE 71% TAKE-UP BY REGION % for Porto. Higher levels of supply in Porto are explained by the fact that retail areas are less disperse whereas in Lisbon other zones outside the city centre such as Avenidas Novas, Avenida de Roma/Guerra Junqueiro, Campo de Ourique or Príncipe Real still account for significant levels of supply. Evolution of demand for retail units in shopping centres, across the year, was highly positive. Although there are no hard facts and figures for this indicator in the retail sector in Portugal, an in-house Cushman & Wakefield survey, based on publicly available information for the sector and targeted fieldwork, has compiled, for the first time, a sample of various retail spaces and high street retail areas across the country, quantifying demand in the sector Northern Greater Centre Greater Setúbal Southern Portugal Porto Lisboa Peninsula Portugal Nr. Stores TAKE-UP BY EXPENDITURE CATEGORY Azores and Madeira The survey included a total number of 49 operations, more than 9% of which were new openings with the remaining 1% comprising renewals and renegotiations of contracts. 71% of new openings were in shopping centres, followed by high street retail with 23%. Although many of the operations are naturally concentrated in the urban centres of Lisbon and Porto, the level of distribution over the rest of the country, accounted for a significant 35% of this analysis of demand. The liveliest sector was restaurants, which accounted for almost 3% of the demand analysed, most probably fuelled by the growth of tourism and a trend towards new independent retail concepts, many of which are to be found in this sector. New fashion stores accounted for a significant 23% of the total, confirming this activity as a major market player. Other goods and services accounted for 18% of new openings. Information published by the Association of Portuguese Shopping Centres also confirms a dynamic level of demand and sector recovery, showing growth in both visitors affluence and sales volume. HEALTH 4% FASHION 23% RESTAURANTS 29% HOUSEHOLD 7% COMMUNICATION 3% RECREATION AND CULTURE 12% FOOD 4% OTHER GOODS AND SERVICES 18% 5

6 A Cushman & Wakefield Research Publication Sustained Recovery Retail operators have gradualy begun to revive their expansion plans and development of new commercial projects has also begun. Across-the-board rent hikes were fuelled by a sustained recovery of the retail market, with the exception of retail parks. Prime rent for shopping centres increased to 75/sq.m/month while rents in retail parks remained unchanged at 8.5/sq.m/month. The highest relative increase was in high street retail, at 97.5/sq.m/month for Lisbon and 45/sq.m/month for Porto at the end of 215, up 3% in Lisbon and 12.5% in Porto, over 214. The outlook for this sector, in 216, is unclear. Whereas an unstable world economy is likely to affect high street retail through tourist spend, downwards revisions of the evolution of the domestic economy may dampen confidence and, consequently, private consumption levels. Portugal, however, is still an attractive proposition for international operators and various brands will be making their market entry in 216. Established operators succeeded in consolidating their position last year and continued to implement an active strategy of expanding or renewing their concepts for coming years. APCC S FOOTFALL AND SALES INDEX (ANNUAL RATE OF CHANGE) 1% 5% % -5% -1% -15% Q4-1 Q1-11 Q2-11 Q3-11 Q4-11 Q1-12 Q2-12 Q3-12 Footfall Index Source: Portuguese Association of Shopping Centres (APCC) Q4-12 Q1-13 Q2-13 Q3-13 Q4-13 Sales Index PRIME RENTS ( /SQ.M/MONTH) Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q Shopping Centre High Street - Lisbon (Chiado) Retail Parks High Street - Porto (Rua de Sta. Catarina) 6

7 OFFICES Keeping pace with an overall recovery of the real estate market, Lisbon s office space sector trended to positive in 215. Stirrings of demand, felt in 214, further strengthened last year with growth of 14% over the preceding year and 44% over the last 5 years average. The year was one of greater corporate optimism, following a long period of contraction, with demand being driven by business growth and future potential, rather than a cost optimisation strategy. However, taking the level of supply into account, net demand, in 215, is likely to have still remained at low levels. The most dynamic sectors were the legal sector, which is undergoing a period of adaptation, as well as call centres and shared services centres, human resources consultants and the financial sector. A sea change in the attitude of developers and investors is also starting to make itself felt on the supply side. This has been fuelled by better economic performance, better financing terms and a clear message from the market on the risk of a shortage of product over the short term. Fresh thought has been given to several projects currently at a standstill and construction work has begun on others. Rents have still to reflect a more positive market, essentially on account of indirect adjustments in the form of a marked reduction of incentives. 216 is likely to witness an effective hike in the market s face rents. TAKE-UP BY SEMESTER Thousands of sq.m Deals for around 145, sq.m of office space, comprising 256 operations, with an average area of 564 sq.m, were closed between January and December 215, slightly higher than the indicator for 214. As is usually the case, the second half year was more active, with 65% of the total. TAKE-UP BY ZONE Thousands of sq.m ; LPI Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone The CBD (zone 2), as in 214, was the main target, with deals of around 29, sq.m comprising 2% of demand. Volumes in the zone were, however, down over 214; essentially owing to the absence of major operations, unlike 214 when the CBD set the pace for the year s largest occupancy of the Duarte Pacheco 7 building by consultants Deloitte. The Western Corridor (zone 6) and Parque das Nações (zone 5) were the runners-up in terms of take-up with 28, sq.m and 25, sq.m respectively. The highest growth was posted by Zones 1 and 4. In the case of zone 4 this derived from the largest deal of the year in the form of EDP s occupancy of its new headquarters in Santos. In Zone 1, reference should be made to the financial sector with more than 4% of annual occupancy, owing to the Bank of Portugal s operations in the Castilho 24 building and BNP Paribas in Alexandre Herculano st Half 2nd Half ; LPI Occupiers are more optimistic Demand is motivated by the increased business and future potencial, contrary to the cost optimisation strategy seen in the past. 7

8 A Cushman & Wakefield Research Publication TRANSACTIONS BY DIMENSION GLA (thousands of sq.m) Nr. of Deals is not significant. The higher vacancy rates in Zone 1, standing at 1% at the end of 215, essentially derived from the vacancy created by Deloitte s departure from Atrium Saldanha. PIPELINE - 216/ , 1,1-2, 2,1-5, +5, Thousands of sq.m GLA (sq.m) Nr. of Deals 1 ; LPI In terms of size, 215 was similar to 214, in which a large percentage (73%) of operations were below 5 sq.m, in line with traditional market dynamics. The largest operations in 215 were in the 3rd quarter. EDP s occupancy of its new headquarters in Santos, totalling 13,2 sq.m was the year s most significant, with the Bank of Portugal responsible for the 2nd largest operation in Lisbon, taking-up the Castilho 24 building s total 7,2 sq.m Teleperformance came third with around 5,5 sq.m in Avenida Álvaro Pais. VACANCY RATE 5 ; LPI Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone 7 Six buildings, totalling office space of 5, sq.m are scheduled for completion by the end of 218, up 4% over last year s projected volume. Unlike the recent past, although most such projects are speculative, scarcity of supply in terms of size and quality has given them a boost and a high level of firm interest has already been noted. 2% 18% 16% 14% 12% 1% 8% 6% 4% 2% % Zone 1 Zone 2 Zone 3 Zone 4 Zone 5 Zone 6 Zone The vacancy rate remained stable across 215 at 11.1%, following an expressive adjustment in 214. Parque das Nações (zone 5) posted the highest reduction in vacancy rates, closing the year at no more than 5.6%, correcting 45 basis points over the preceding year. The Western Corridor (zone 6) went down the same route, with a break of 12 basis points, albeit at a still high rate at 17.5%. The highly positive evolution of Parque das Nações is a clear sign of this zone s appeal and its limited growth potential. Vacancy rates were up across all other market zones, particularly Zone 3, which ended 215 with 14%, following more favourable rates in the past. Although this evolution derived from the availability of more space in buildings of poorer quality, overall supply, at just over 7, sq.m, 8

9 As regards market rents, the fact that higher activity levels have been counterbalanced by a gradual reduction of incentives offered by landlords, explains why Greater Lisbon s prime rent remains unchanged at 18.5/sq.m/month. Prime rents in other zones have also remained unchanged with the exceptions of a.5 increase in Parque das Nações to 15.5; and a decrease in Zone 3 to 14.5/sq.m/month in December. There was an upwards adjustment to the average rent in the Western Corridor, which had dipped to historically low levels over several years and whose average reference value for offices in the zone closed at 8.5/sq.m/month. RENTS Zone Prime Central Business District Average ( /sq.m/month) Prime ( /sq.m/month) 16, 18,5 Parque das Nações 13,5 15,5 Out of Town 8,5 11, Market outlook will involve a change from the past few years in clearly trending to pre-lets, based on an ever more certain scenario of a scarcity of product. Parque das Nações will continue to act as a magnet and the Western Corridor, as the zone with greater availability, could benefit from the lack of space in other zones of the city. Owing to the city s urban evolution, Zone 4, driven by new projects such as EDP s new headquarters and the future head offices of Abreu Advogados, should enjoy a fresh lease of life as the source of a business cluster along the Santos and Alcântara riverside zones. 9

10 A Cushman & Wakefield Research Publication INDUSTRIAL & LOGISTICS The highly positive evolution of the real estate market, across 215, was only felt in the industrial sector in the second half of the year and then not by much. There was a certain growth of demand, although relatively feeble, with a fresh look being taken at projects hitherto at a standstill. MANUFACTURING INDUSTRY S CONFIDENCE INDICATOR* Land deals, albeit essentially for other than industrial use, were also resumed as the result of economic recovery. The investment market was the positive exception to the rule, with the intense level of deals in logistics assets of international investors JAN-1 APR-1 JUL-1 OCT-1 JAN-11 APR-11 JUL-11 OCT-11 JAN-12 APR-12 JUL-12 Portugal OCT-12 JAN-13 APR-13 Euro Area JUL-13 OCT-13 JAN-14 APR-14 JUL-14 OCT-14 JAN-15 APR-15 JUL-15 OCT-15 There was a consistent upturn in operators confidence levels in domestic manufacturing across the year, in line with the trend in evidence since end 212. In December last year the industrial confidence indicator in the Eurozone sank to its year 28 baseline value. In Portugal, although confidence levels in the referred to year had not recovered, the indicator has, over the past 24 months, trended to positive and consistent values. Greater confidence in domestic manufacturing was influenced by the favourable evolution of foreign trade which retained its growth levels of past years across 215. Source: INE * Seasonally adjusted - 3 months moving average BALANCE OF TRADE Millions of 7, 6, 5, 4, 3, 2, 1, Consistant upturn in operator s confidence -1, -2, -3, Exports Imports Trade Balance These results are particularly encouraging, considering the unfavourable economic situation in several of Portugal s export markets, such as Angola and Brazil. According to preliminary data published by INE, Portuguese exports rose to 5 billion in 215, pointing to growth of around 4% in global export volumes, more than double last year s rise. In turn, imports, on the wane up to 213, were up again in 215, with total imports of 6 billion, a growth of 2%. This evolution of the commercial activity of the Portuguese economy translated into an end of year deficit on the balance of trade for goods, albeit comprising a slight improvement over 214. As already stated, such dynamism was not reflected in the real estate sector although demand was clearly more noticeable. The main deals of the year in Greater Lisbon took place in Zone 1, in Alverca and Castanheira do Ribatejo (Alverca-Azambuja area), in both cases, occupancies of logistics platforms with areas of around 2, sq.m. Zone 5 (Sintra-Cascais) was also very active, albeit with lower occupancy rates, essentially comprising small warehouses, with an average area of around 2,5 sq.m. The market therefore continues to be characterised by renegotiations of contracts, with a downwards revision of rents for many occupants who have still not succeeded in returning to pre-crisis levels of activity and still have space to spare. Source: INE 1

11 MAIN INDUSTRIAL AREAS Zone Axis Zones Rent Ranges ( /sq.m/ month) 1 Alverca - Azambuja Póvoa de Santa Iria, Alverca, Vila Franca de Xira, Azambuja and Carregado Offer Demand Moderate Moderate 2 Almada - Setúbal Almada, Seixal, Quinta do Anjo, Palmela and Setúbal High Low 3 Loures Loures, Odivelas, São Julião do Tojal and MARL Moderate Low 4 Montijo - Alcochete Montijo and Alcochete Moderate Low 5 Sintra - Cascais Sintra, Cascais, Oeiras and Amadora Low Low Greater Porto Low Moderate ; Predibisa Demand in Greater Lisbon is reflected in the stabilising of the prime rent at 3.75/sq.m/month for logistics spaces, in line with 214 values, as opposed to the negative evolution of the last few years. Reference should, notwithstanding, be made to the fact that such rents create obstacles for the financial feasibility of new projects and could put the lid on growth of new, higher quality supply. likely to make much of a dent this year owing to high vacancy levels. In Greater Porto the Port of Leixões project, which is expected to achieve good occupancy rates owing to the shortage of quality space in the zone, is still in progress. Greater optimism in the sector could lead to the appearance of other projects in Greater Porto. Expectations for the sector, in 216, are moderately positive, taking industrial activity and export growth indicators into account. The trend may, however, be conditioned by doubts over the outlook for economic growth in 216. Resumption of the construction of new supply in Greater Lisbon is not 11

12 A Cushman & Wakefield Research Publication HOTELS The market upturn announced over the last few years was confirmed by the domestic hotel sector across 215. According to INE data, the highly positive evolution of key indicators, in 214, showed further improvement in 215, with huge growths, not only in demand but also profitability. the highest growth in room nights was the Alentejo with 11.8%. Higher growth levels were also recorded in all other regions of the country, with the Algarve being the region with the lowest relative growth of 2.7%. BEDNIGHTS IN HOTELS BY REGION (ANNUAL RATE OF CHANGE) 2% 15% DOMESTIC TOURISM INDICATORS INDICATORS Var. % 214/ 215 Guests (million) Bednights (million) Hotel revenues (million ) Var. % 213/ , 13,8 14,4 16,1 17,4 8,6% 11,7% 39,4 39,7 41,6 45,9 48,9 6,7% 1,4% 1 764, 1 87, , , ,9 13,1% 12,2% 1% 5% % -5% Source: INE NORTH CENTRE LISBON ALENTEJO ALGARVE AZORES MADEIRA Revenues per bednight ( ) Source: INE 44,7 45,6 47, 47,8 5,7 6,% 1,7% Growth in demand and profitability The number of hotel guests in 215 was up 8.6% over the same period 214 to 17.4 million. Domestic tourism establishments also posted a total of 48.9 million room nights, up 6.7% over 214, with the average stay adjusting to 2.8 nights. In turn, the net occupancy rate per bed was up 21 basis points over 214 to 46.1% at the end of 215. Hotel revenues were up by creditable 13.1% to 2,48 million. As a result, revenues per room night were up 6.% to 5.7. Average revenues per available room (RevPAR) were up 14% over the preceding year to 37.8 in 215. Despite the positive evolution of this indicator, it is among the lowest in Europe, and has a good margin to grow. The stellar performers in 215 continued to be the Algarve and Lisbon regions which accounted for 6% of the domestic total, with 16.6 million and 12.3 million room nights respectively. There were, however, significant changes in the distribution of room nights per region in 215. Not surprisingly, there was a significant growth of 19.6% in room nights in the Azores region owing to the direct effect of opening up airspace to low cost flight operators. Porto s huge pulling power on the international scene also had a strong impact on the 13.6% growth in number of room nights in the northern region. Coming third as the zone with The highly positive performance of tourism helped to fuel greater interest in the sector. Hotel operators clearly showed more interest in Portugal, across 215, in their network expansion strategies or even as new entrants, particularly in Lisbon and Porto. In real estate investment terms, growth in the hotel sector stirred a growing level of interest owing to the recent evolution of the tourism market in Portugal and good future prospects. This trend is exemplified by Minor International Group s purchase of a portfolio of 5 Tivoli hotels for around 15 million. Urban redevelopment, as in the case of other sectors of activity such as residential and retail, has been the target for special interest from operators who, in concentrating their interest in Lisbon and Porto, have found urban redevelopment opportunities to be their best gateway. The outlook for the tourism sector in Portugal, in 216, is highly positive, with foreign demand accompanied by investment expected to continue to grow, on the basis of the much improved profitability of hotel operations. Investment growth Positive performance in this sector has contributed to a greater interest from hotel operators in terms of real estate investment. 12

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14 A Cushman & Wakefield Research Publication RESIDENTIAL In line with the evolution of the economy, the Portuguese residential market consolidated in 215 the recovery started in 213. Higher consumer confidence levels have helped to ramp up demand for residential assets. This has also been fuelled by the banks newfound willingness to lend, although not in the same way as in the past. February last year witnessed the start of the banks spread reduction process that with Euribor rates continuing at all-time lows, resulted in much lower global interest rates on mortgage loans than in the crisis years. According to the Bank of Portugal, interest rates on new mortgage loans have been coming down. In September this year they fell to their lowest level since March 21 at 2.23%, against 5.76% in September 28, their highest of the last 1 years. These conditions fuelled a higher volume of mortgage loans. According to the latest available statistics, financial institutions issued billion in mortgage loans to households, to September, up by a year-on-year 7%, the highest since 212. Urban redevelopment was undoubtedly the sector s characteristic trend across the year. Following several relatively sluggish years, this business area was given a fresh lease of life in 215, owing to greater demand from international investors, fuelled by the potential of tourism and the international public s growing interest in high and medium-high quality housing products. The main target for such investors was Lisbon s city centre and their interest highly geared to real estate for residential and/or tourism use, very often with retail units on the ground floor. The year s main deals particularly included Qarisma s purchase of a block on Avenida da Liberdade for around 32 million, a domestic investor s purchase of the Chiado s Palácio das Belas Artes for 18 million and Stone Capital s acquisition of the Avenida da Liberdade 71 project. HOUSES FOR SALE - LISBON AND PORTO MUNICIPALITIES Nr. of houses for sale 12, 1, 8, 6, 4, 2, Source: SIR 1, Q1-Q3 215 Lisbon - Nr. of Houses for Sale Porto - Nr. of Houses for Sale Lisbon - Asking Price / sq.m Porto - Asking Price / sq.m 3, 2,75 2,5 2,25 2, 1,75 Asking price / sq.m 14

15 An analysis of SIR data on a sample of around 1, residential properties in Lisbon and Porto, confirms the market s positive evolution, particularly on a level of supply which was significantly down in both cities over 214. Stock available in the municipal district of Lisbon was adjusted downwards by around 22%, with a total number of 6,4 homes for sale in September 215. Average asking prices were, in conformity, up 9% over third quarter 214, to 2,949/sq.m. Porto had approximately 3, homes for sale in the third quarter of 215, down by a year-on-year 37%. Average asking prices have remained relatively stable across the last few years and were even slightly down over the preceding year to 1,746/sq.m in September. This may be explained by the greater ease in selling products with higher average prices. In terms of demand, the evolution of SIR data shows no change in sales volumes in Lisbon, based on currently available data from January to September 215. The evolution in Porto was much more positive with a 2%growth. The outlook for the residential market in 216 is positive, not only on account of the recovery of domestic demand but also the recent appeal of residential assets in Lisbon in the eyes of private investors. Prices are unlikely to change or may increase slightly. The main emphasis will be on Lisbon and Porto city centres where higher demand from foreign investors will have a greater impact on prices. Notwithstanding retraction of demand, across 215, with an increase in property acquisitions, the rental sector is likely to remain relatively dynamic across 216. This should fuel the appeal of residential assets for investors, particularly in the urban redevelopment segment in Lisbon and Porto city centres, although this is contingent upon rent stability, which has not, to-date, been the case. Urban Redevelopment Marked the evolution of the residential sector throughout the year, based on a high demand from foreign investors fuelled by the potencial of tourism and the international public s growing interest in high and medium-high quality housing products. 15

16 A Cushman & Wakefield Research Publication INVESTMENT COMMERCIAL INVESTMENT BY ORIGIN was an exceptional year for the real estate investment market which more than doubled over 214. The volume of real estate investment in the commercial sector in Portugal peaked at a new all-time high of 1.9 billion 1 in 215 of which 86% comprising foreign capital. THAILAND 8% SPAIN 12% OTHER 13% USA 41% COMMERCIAL INVESTMENT BY ORIGIN GERMANY 12% PORTUGAL 14% Million 2, 1,75 1,5 1,25 1, COMMERCIAL INVESTMENT BY SECTOR INDUSTRIAL 7% OFFICE 22% NATIONAL FOREIGN Real estate investment, across 215, comprised a total of 53 operations. There was an increasingly stronger trend towards portfolio transactions, almost doubling the average deal value in comparison to the preceding year, to 36 million in 215. The year was also characterised by diversification of the type of investor allocating funds to the Portuguese market, not only in terms of their geographies but also risk profiles. The fact that the range of real estate investors in Portugal is currently much broader than in the past is indicative of domestic real estate assets growing worldwide competitiveness. Various investors allocated funds to the Portuguese real estate market, for the first time, in 215. They included the Thais of Minor International, the US Ares Management or Spain s Merlin Properties, Socimi S.A. Foreign investors played a major role in this activity s recovery in accounting for 86% by volume and 74% in number of deals. US capital was the most significant in channelling around 8 million into domestic real estate, renewing yet another all-time high for US investment in Portugal. Spanish investment, in 215, albeit tip-toeing into the year, was, in conjunction with German investment, the second largest market with the highest allocation of capital to the Portuguese real estate market, each of which with 12% of total foreign capital invested for more than 22 million. The retail sector, after several years of minority status, retook pole in terms of capital volumes, with circa 6% of the total. Various international investors, taking advantage of the excellent quality/price ratio of assets HOSPITALITY 14% PRIME YIELDS 11% 1% 9% 8% 7% 6% 5% 4% Industrial (Gross Yield) Shopping Centre (Net Yield) RETAIL 57% Office (Gross Yield) High Street Retail (Gross Yield) 1 The volume accounted for refers to declared investment operations. i.e. in which the reason for the deal is to allocate capital to a real estate asset as opposed to alternative investments. Instrumental operations which solely reflect a change of corporate vehicles or which consist of investments in assets not resulting from a conscious investment strategy are not considered in the reported numbers. 16

17 in comparison to other Eurozone markets, allocated funds to the retail sector in Portugal. Blackstone allocated a sizeable amount of capital to the sector, in 215, for its acquisition of a portfolio of retail spaces, including Almada Forum and Forum Montijo and a collection of retail parks previously owned by British Land. RREEF also invested in the sector with its purchase of Dolce Vita Porto, Coimbra and Douro. The office sector, notwithstanding a more modest start to the year, accounted for around 22% of total investment in 215. The year s largest deal was Blackstone s acquisition of Almada Forum and Forum Montijo in an investment estimated to be worth over 33 million and Portugal s largest deal ever. The evolution of prime reference yields kept pace with the market recovery trend, with successive quarterly drops, comprising an annual aggregate change of 1 basis points. The indicator was 5.25% for offices, 5.% for high street retail, 5.5% for shopping centres and 7.% for the industrial sector, at the end of 215. Commercial real estate investment is likely to continue to trend upwards in 216 and may possibly reach an all-time high by volume. The main risks are the high levels of international instability and the evolution of domestic policy which may be less favourable to foreign investment. However, the fact that the real estate segment is increasingly considered to be a safe haven for investment should leverage an increase in demand. The expected continuation of high levels of liquidity in 216 as a result of the central banks expansionary monetary policies, as well as the continued flight of funds from the stock market is also likely to fuel a major allocation of capital to the real estate market across 216. Lastly, the Portuguese market is in a favourable position in comparison to other European markets in terms of the quality/price ratio and in which competition in terms of demand is much lower in Portugal than in other markets. CONTACTS Managing Partner Eric van Leuven eric.vanleuven@cushwake.com Research & Consulting Marta Esteves Costa marta.costa@cushwake.com Retail Sandra Campos sandra.campos@cushwake.com Offices Carlos Oliveira carlos.oliveira@cushwake.com Industrial & Land Ana Gomes ana.gomes@cushwake.com Capital Markets Luís Antunes luis.antunes@cushwake.com Property & Asset Management Bruno Silva bruno.silva@cushwake.com Valuation & Advisory Ricardo Reis ricardo.reis@cushwake.com Project Management Matthew Smith matthew.smith@cushwake.com Shopping Centre Management André Navarro andre.navarro@cushwake.com For further information or additional copies of this or other reports, please contact: Filipa Mota Carmo Marketing filipa.carmo@cushwake.com Tel.: Cushman & Wakefield is a global leader in commercial real estate services, helping clients transform the way people work, shop, and live. The firm s 43, employees in more than 6 countries provide deep local and global insights that create significant value for occupiers and investors around the world. This document contains general information and it has been used by Cushman & Wakefield on the assumption that it is correct and accurate. Cushman & Wakefield declines all responsibility if this is not the case. No warranty or representation, express or implied, is made as to the accuracy of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental, or other conditions, and withdrawal without notice or at the request of our clients. 216 Cushman & Wakefield. All rights reserved. Cushman & Wakefield Av. da Liberdade, 131 5º Lisbon - Portugal 17

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