In its estimates for the annual census of the Portuguese real estate market in 2023, JLL says that commercial real estate transactions could reach between 1.8 billion and 2 billion euros.
In a year in which the geopolitical and macroeconomic situation has had an inevitable impact on the real estate market, JLL also estimates around 100,000 square meters of office space occupied in Lisbon over the course of 2023, translating into annual declines of 45% and 63%, respectively.
The residential segment has also been affected, although the reduction is more contained, with a contraction of around 16% in sales volume expected, to around 27,000 million euros in transactions in 2023. According to JLL, this compression scenario is mainly the result of the challenging geopolitical environment and the respective risks of economic recession and marked political instability.
JLL highlights the resilience of the Portuguese market
The last three years have shown us that there is no such thing as a foregone conclusion. After an unspoken pandemic and the start of a new armed conflict in Europe, 2023 was a year of great challenges at all levels. Economies have slowed down, political instability is now a widespread risk and all this has developed against a backdrop of inflation that has not been controlled as expected and interest rates that have risen beyond what was expected. This is a global picture that affects Portugal and the real estate market directly," comments Patrícia Barão, Head of Residential at JLL.
Gonçalo Santos, Head of Capital Markets at the consultancy, notes that the volume of investment in commercial assets has almost halved, reflecting the lack of activity in large-scale operations, which are generally carried out by the big international investment houses. However, this recessionary behavior had been expected since the beginning of the year, not least because the 2022 financial year reached historic levels, with some large-volume and untypical operations on the market.
He adds that, on the one hand, Portugal is behaving in line with the trend in most European markets, but on the other, the structural lack of supply in most of the different sectors of the Portuguese real estate market is a factor which, together with the recognized quality of our assets, is also very important; the recognized quality of our assets, especially from an operational point of view, contributes to the price resilience seen during 2023, which translates into a lower correction in value when compared to the vast majority of other European markets.
In the industrial & logistics sector, absorption is expected to increase by more than 10% year-on-year, in retail, sales in shopping centers increased by 10% and the RevPar of hotels in Lisbon increased by 29% up to the end of the third quarter; at the end of the third quarter of the year, largely due to the increase in ADR (average daily rate), which reflects a more qualified demand.
According to Maria Empis, Head of Work Dynamics at JLL, "the office occupation has in fact been greatly impacted by the global economic context;In addition to the current difficulty companies face in deciding which is the right office and which is the right size, in a context of uncertainty as to which is the ideal working model for the future. But one thing is certain: offices are essential for boosting company culture, collaboration and creativity and thus continuing to thrive, so they are not going to die out, quite the opposite.
Real estate will maintain healthy indicators in 2024
Despite the climate of geopolitical uncertainty at international level and political instability in Portugal, the consultancy estimates that the market will maintain healthy indicators. In macroeconomic terms, the scenario is a little more favorable, because although the projections for GDP growth are softer, expectations point to a stabilization of inflation and a slowdown in interest rate rises.
We expect 2024 to be in line with 2023 in terms of levels of real estate activity, in which there will continue to be a transversal lack of supply, a tendency for prime rents to rise and for housing prices to be sustained. Naturally there are sectors that are of greater interest for investment and promotion, also because of the stage of the cycle they are in, such as the alternative segments, but in general we can say that Portugal is still on the international radar, including the traditional real estate segments, both in terms of occupation and investment. Development will continue to be a sector of opportunity for this market, where ESG imperatives are an unavoidable priority for those who develop, buy and occupy real estate," adds Patrícia Barão.
