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Portugal Investment Adjustments - What movements to expect in the next months?

5 MIN READJuly 22, 2020
GRI Club Portugal members gathered online to discuss the reopening of the Portuguese real estate and capital markets, highlighting portfolio strategies, asset pricing, demand, movements in risk and inbound capital.

Are Government, fiscal and private investors key to get growth back on track? How will asset occupancy, prices, rents, value & yields play out? What transitory changes can we expect and which ones are going to prevail in portfolios? Are JVs with domestic investors the future? How will the relationship play out between local and international investors? How can their increment be a vital growth driver in the long-term?

These and several other issues were discussed on 10th July with the key industry leaders to share perceptions and experiences. Despite pandemic headwinds, Portugal's private consumption boosted by economic stability, investments and the prominent construction sector are putting the country in a resilient position. Still, markets will face a challenge to attract and retain capital. Check below for a general overview of the main asset classes:

Industrial & Logistics

In a small country like Portugal, with less infrastructure compared to more developed countries that invest heavily on industrial & logistics, the last years were not so good for the development of assets related to this sector. Although, the key investors in Portugal are benefitting from the growth of the online sector and further e-commerce penetration. The main challenge  will be the increment of technology in warehouses and distribution centers, leading to a new need for operators to update their facilities. If there is a winner in the current scenario, it would be those seeing industrial and logistics assets as new opportunities for the country in the short and mid-term.

Hospitality

In recent years, Portugal became one of the main tourist destinations in Europe and the hospitality sector was expecting good market results for 2020. Although, with the Coronavirus scenario, in a country where tourism is a relevant part of the economy, many hotels closed and negativity took over the market in the last months. Faced with this general difficulty, those better prepared to adopt innovative models, with security and differentiated services, will be leaders, both in the resumption of the market and in the greater confidence of consumers. Even with the devaluation of assets, it is expected that the market will return to its normal course gradually and investors can face new opportunities in the next 12-18 months with distressed assets. Cash is king and key for the sector will be the finding of an effective vaccine. The recovery is going to be as soon as people feel comfortable to travel and look at touristic destinations. 

Offices

Due to the current scenario, most Portuguese real estate players are questioning going back into  offices and what the new spaces or models of work will look like in the post-pandemic period. Demand is going to be impacted in the next few months with the need for social distancing. Although, even with developers and investors rethinking their real estate assets and workplace strategies de-densification will play a major role in the next few months. Most of the players cannot foresee a problem with the office sector since the number of new cases of Coronavirus is stable and people should return to offices soon. 

Residential

The residential market, the largest and main real estate sector in Portugal, has  great expectations for the next months. One of the most prominent and resilient asset classes compared to other sectors that were more affected by the current scenario, residential development was affected in April with no transactions, but May and June could see better results. Many launches that were planned for the first and second quarter are moving towards Q3, a period that for many will be very busy, leading to questions of how new assets should be placed to differentiate themselves from competitors and diversify portfolios. A lot of international investors are looking for opportunities related to the residential sector and Built-to-rent (BTR) projects should face a positive growth in the next months. 

Shopping & Retail

Unlike other sectors, the prolongation of quarantine and its effects on a possible reopening of Shopping Centers in Portugal have accompanied players in the shopping & retail sector since the beginning of the current situation, generating uncertainty in relation to the coming months. Several shopping center administrators in the country have faced the challenge of creating strategies to maintain sales and at the same time provide health & safety measures according to guidelines of the World Health Organization (WHO). In the short term, uncertainty will play a major role in the sector and eventually some will fail in the next months. Although, looking at a longer term perspective, we can see that active management on assets will crystallize as a major trend. New habits were accelerated in this period, when shopping centers are no longer a mere traditional place for shopping, but a new center with a mix of services, focused on areas of socializing, entertainment, experiences, integration between people, leisure, etc. It can be seen that rapid changes are happening and the increasing challenge will be to attract people to the enterprises, either due to the impacts related to the current situation or new digital experiences. 

Conclusion

Despite pandemic and uncertainty, the prominent real estate sector is putting Portugal in a resilient position. With fiscal stimulus set to aid the markets, consumers will need to embrace changes. Even with many deals on hold right now, real estate and capital markets are going to get back into dealflow, yet the new business environment will be completely different in the next months since the recovery cycle will be affected by demand and the postponed investments of different projects.  

Although players are cautious, they are looking to find new opportunities that are arriving in the next year when a recovery is expected. They will need to be prepared to set adjustment in assets development on a longer term strategy since transitory shifts are happening across all real estate assets, most of them boosted during the pandemic. The resilient ones will prevail. The attraction of international investment and foreign investors have made the country more competitive and attractive than 10 years ago and Portugal is ready to embrace new changes and surpass the current situation. 
 
The debate was moderated by Paulo Loureiro (Bondstone) and attended by Fernando Costa (Nexity), João Cristina (Merlin Properties), José Araújo (Millennium bcp), Paulo Barradas (Norfin), Pedro Coelho (Square Asset Management), Pedro Seabra (Explorer Investments) and many others.

The GRI Club Real Estate agenda in Portugal

The GRI Club Real Estate Portugal eMeetings agenda for 2020 is now available. Know what's ahead.
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