Lisbon – the once forgotten sleeping beauty of the 20th century has looked to the web as the transformative engine to reinvent itself as the “Berlin of the South” - one of the most dynamic entrepreneurial hubs in the world
But it’s important to recognise that all this growth and enthusiasm has also brought adverse consequences. Real estate and construction prices have skyrocketed while demand has intensified for both residential and office space and the resulting undersupply has led to speculative development and affordability issues. Portugal and the real estate community must therefore come up with an alternative formula for growth, as the ingredients of its recent success seem inadequate for the future.
In the growing appetite for investment in the alternative asset classes lies a significant opportunity for the Portuguese real estate sector to evolve and rebalance its contribution. A recent report by the consulting firm PwC confirms that almost 70% of industry players in Europe wish to increase their holdings in alternatives. Co-living, co-working, student housing and senior living are examples of those alternative asset classes coming to the fore and they remain largely under represented in the Portuguese real estate scene.
All alternatives are based on the sharing economy that allows for a more efficient use of assets, bringing wide benefits for the users, investors and society at large. Users trade a smaller private space – desk, room or flat for access to a greater number of shared amenities – kitchen, lounges, workspace and etc. The additional density allows real estate owners to enjoy substantially higher rents per square foot, while still providing a more affordable option for renters.
With pan-European markets in a late cycle and real estate values already high across the continent, the industry and international investors at large are looking for yield strategies able to generate steady income and the alternatives fit the current market climate like a glove. Demand for alternatives will therefore remain strong with capital allocation gathering pace.
Portugal must make an effort to remove barriers to capitalize on this evolution of the real estate industry, but there are significant internal challenges. The lack of a clear legal framework and tax regime poses barrier for underwriting large-scale investment into alternatives except for student housing. Urban policy must also be adjusted to reflect changes in lifestyle. For instance, greenfield projects in Portugal require a large allocation of parking space when car ownership among young people in Portugal is extremely low, there are many other more sustainable means of transport on offer. Finally, the long timeframes for licensing projects affects the viability of projects already challenged by inflated costs, and portrays the wrong image of Portugal to international investors.
Portugal must seize the moment and make a concerned effort to remove barriers and nurture those alternatives to continue at the ride the new economy wave. Technology has changed the way the world appears and functions, and the alternatives are set to change the way modern society approach the world of housing and work in the future.