Offices Increasingly Scarce in Greater Porto

23 January 2019

The office vacancy rate in Greater Porto stood at 7.3% in December 2018, a sharp decline compared to 2017.

Due to elevated demand from new companies, especially multinationals, the supply of offices in Greater Porto has fallen to record lows.

These are some of the conclusions of the second edition of the study “Porto Office Market”, prepared by Cushman & Wakefield and Predibisa. The analysis is intended to be a reference work for developers, tenants and investors, encouraging transparency and growth in this important segment of the real estate market.

54% of the total office stock is in Porto

Porto has most of the office supply in the region, with a total stock of around 820,000 m2, spread over more than 250 buildings (54% of the total). Boavista concentrates the highest quality buildings, representing 45% of the total, or about 180,000 m2. The area also has a lower vacancy rate (6.4%) than the region as a whole, the study says.

According to the study sample (more than 1.3 million m2), the office vacancy rate in Greater Porto shows that the Porto – ZEP (Porto Business Zone) and Matosinhos zones have the lowest rates, both on the order of 5.6%. In contrast, the highest vacancy rate is in Eastern Porto, with 10.7%, a figure largely influenced by limited supply, with only 13,900 m2 of vacant office space.

Limited Supply + demand pressure = rent increases

According to data from the study, prime rents in Boavista, the Central Business District (CBD) of Greater Porto, are currently at €18/m2 per month. The average rent in the same area is €14/m2 per month. In turn, prime rents in Baixa are at €17/m2 per month, while average rents stand at €12/m2 per month. Matosinhos is the municipality with the highest prices, following Porto, with rents varying between €11 and €14/m2/month. In Vila Nova de Gaia, rents range from €10 to €13/m2 per month and in the remaining areas between €1o and €12/m2 per month.

Rising rental costs, particularly in the city of Porto in the Baixa and Boavista areas, have been primarily influenced by high levels of demand, powered by large companies whose needs have required upgrades to office space, and a consequent increase in rents. At the same time, supply shortages have also contributed to rising rents. According to the study, the short-term trend points to further increases, particularly in the areas that currently practice the lowest values.

The report also comments upon trends in the sector, including: demand, which should continue to grow throughout Greater Porto this year, solidifying the city’s position as a competitive European office destination; the consolidation of the city’s eastern zone, which is becoming a new business and cultural centre of the city; the need for investment in the public transport network throughout the Metropolitan Area, which is fundamental for the marketing and development of new projects. Other trends include continued investment in urban rehabilitation, which has been and will continue to be the basis for the city’s economic renewal and the growth of the office market and the concomitant rise in rents, which is expected to hold firm due to limited supply and higher-quality new developments.

New offices in the pipeline

Three large projects are currently underway in Greater Porto with the involvement of Predibisa: the POP – Porto Office Park, a new building which was designed from the ground up and is being built by Francos, adding another 31,000 m2, starting in September 2019; the rehabilitation of the Palácio dos Corrieos (Post Office Palace), in Aliados, with 17,000 m2 of gross leasable area (ready in the last quarter of this year), and the Lionesa expansion project in Leça do Balio, which will double its current capacity in the coming years. The BOC – Boavista Office Center, a rehabilitated building, was leased in its entirety in 2018 and will be occupied early this year by a single company.

Original Story: Diário Imobiliário

Translation: Richard Turner