The context of global uncertainty continues to put downward pressure on investment, and Portugal is no exception to the international trend. Investors are more cautious and are delaying business decisions, which has led to commercial property investment totalling 1,050 million euros between January and September, down 46% on the same period last year.
According to the most recent Market Pulse, JLL's quarterly report analysing the performance of the Portuguese property market in the area of investment, of these 1,050 million euros, 275 were invested in the third quarter. Of the total volume invested in the first 9 months of the year, 39% relates to the hotel market, marked by a portfolio acquisition operation that represents almost ¼ of the total volume. Retail accounted for another 36%, also reflecting the weight of an operation involving a portfolio of 40 supermarkets.
Foreign capital accounts for 70 per cent of this investment volume, a share that has been increasing, especially in the third quarter.
On the other hand, yields expanded in prime offices, compressing 75 basis points year-on-year to 5%, increasing 55 basis points in prime shopping centres to 5.9%. In hotels, the yield was 5.65 per cent.
This drop in the volume of investment "is the result of a more cautious attitude on the part of investors and a delay in the realisation of many operations, reflecting the growing uncertainty due to the macroeconomic and geopolitical framework, in a trend that is global and that is also affecting Portugal".
Pedro Lancastre, CEO of JLL Portugal, commented in a statement that "the 3rd quarter results are not surprising. Economic cycles affect the property market and the end of the first half of the year already showed signs of a slowdown in transactional occupancy and investment activity". It analyses that "although inflationary pressure is easing and the ECB did not raise interest rates at its last meeting, there is still a lot of uncertainty about macroeconomic developments and how property consumers, whether companies or families, and banks will adapt. Naturally, this puts operators on alert and increases levels of caution, delaying decisions, reformulating plans and readjusting processes."
The head of JLL adds that "this is a feeling that prevails globally and not just in Portugal. Reflecting the path we've travelled in recent years, we're a market with international exposure and we're not immune to the trends that affect capital allocation strategies. It's not a question of a loss of attractiveness or the fragility of our performance indicators," he guarantees.
Pedro Lancastre even gives the example of the office market, where this trend is most visible: "an area where we have been following the European trend of a downturn in activity against a backdrop of increased macroeconomic challenges".
For her part, Joana Fonseca, Head of Strategic Consultancy & Research at JLL, notes that "in any case, in offices and housing especially, the main impact of this more pressurising environment has been seen in the loss of volume, with fewer transactions taking place than on average in previous years. Appreciation indicators, i.e. prices and rents, have remained stable or even grown, with adjustments only in more secondary segments and locations."
"The most worrying thing is that there are no incentive solutions to stimulate growth in supply"
In the months under review, the office market, without prejudice to a drop in take-up of 70% in Lisbon, held prime rents at 27 euros per square metre. In Porto, take-up fell -10%, and prime rents rose slightly to 19 euros per square metre.
Regarding the other segments, Joana Fonseca notes that "logistics continues to perform well, which is only pressurised by the limitations of the available supply", which is why rents grew again in almost all areas in the 3rd quarter despite a slight drop in absorption levels. The highest rent in the Lisbon region is reached on the Carnaxide-Alfragide and Lisbon-city axis, at 6.25€/m². In the north of Porto, it stands at 4.75€/sqm.
The hospitality and retail sectors, the most affected during the pandemic, "continue on the road to recovery", despite the macroeconomic situation: "tourist flows are once again in line with the best pre-Covid year, guaranteeing daily rates and historic returns, while in commerce, retailers continue to look for shops at a time when, despite the loss of household purchasing power, retail sales are sustaining 2022 levels".
As for housing, sales prices remained stable (in Lisbon( at 4,580 euros per square metre, and at 3,030 euros in Porto, a marginal contraction of 2% year-on-year.
For Pedro Lancastre, "the behaviour of rents and prices in a context of macroeconomic adversity proves that we have a mature market, with a solid base of demand, but also that we continue to face a serious problem of lack of supply, which sustains valuation levels at a time of falling activity". However, in his view, the "most worrying thing is that there are no incentive solutions to stimulate growth in supply in the short and medium term, especially in housing, where the lack of property has been at the root of making the market more expensive and restricting access for many consumers. The creation of new supply must be done by private individuals, but the conditions must be created for these investments to be realised," argues the CEO of JLL Portugal.
Uncertain scenario likely to continue
Joana Fonseca says it's "difficult to draw up an outlook" for the rest of the year. "We know that despite some relief in the growth of inflation and the increase in interest rates, we are not yet on stabilisation ground for these indicators and we can't be sure how they will evolve. This is a scenario of great uncertainty that undermines investor confidence, and in which there is effectively a reduction in families' disposable incomes and greater difficulties in accessing finance. However, there is one other thing we know: the property market is very resilient and has already proven its ability to cope with adverse circumstances successfully."
