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Lack of Office Space May Affect Economic Growth
25 July 2017
The lack of large, high-quality offices coming on the market in the next two years can negatively affect Portugal’s economic growth, due to lost international investments. This is according to Eric van Leuven, the general director of the consultancy firm Cushman & Wakefield’s Portuguese operations.
The statements were made during a presentation of the consultancy’s report, ‘Marketbeat,’ to journalists. Marketbeat Portugal is a semi-annual study that analyses real estate activity in the office, retail, industrial, residential and hotel sectors, in addition to national investment activity.
Van Leuven pointed out that the supply of office space set to arrive in the earlier part of that period is already “70% occupied” through pre-let agreements. He added that plots of land are still available in areas of Lisbon such as the old flea market and the eastern zone of the city.
In 2018 and 2019, projects like the third Colombo tower and the Jerónimo Martins project in the Praça de Espanha, will come on the market, but there is already demand for 10 to 20 thousand square meters of space. This unmet demand will “negatively affect economic growth,” van Leuven argued.
Porto: increasing demand for new developments …
Data from the consultancy’s study indicate that there was an increase in new demand for offices. 33% of the transactions in the first half of the year were attributed to new and expanding companies in Lisbon, with a good part coming from shared service centres.
In Porto, there has been increasing demand and a growth in the number of new real estate developments, something that has not happened since 2006.
Regarding the earlier changes to the urban lease law, which extended the transitional period for old rental contracts in the cases of elderly and low-income renters, and recognized a special class of historic shops, Eric van Leuven lamented “legal and fiscal instability” and stated that the Portuguese state shouldn’t expect private investors to do social work.
He predicted that investors could be penalized for having bet on building renovations, by having to wait for a five-year period until the final liberalization of pre-1980 rental agreements, and for not having provided for the possibility of legal protection for certain ‘traditional’ stores.
“The market and the image of the market are being penalized,” he said.
2017 should be the year “with the highest volume of investment in the history of the real estate market in Portugal”
As for investment, the consultancy noted that the appreciation of real estate assets continues this year, after surpassing the yields recorded in the last market peak (2007), and that this trend can could even grow over the next two years.
The amount invested this year is “slightly higher” than that in 2016 and “was above the average of the last decade”, with deals currently exceeding 3.5 billion euros, of which about 1.5 billion can be completed by the end of the year, making 2017 the year “with the highest volume of investment in the history of the real estate market in Portugal”.
The consultant also noted that 91% of the volume traded in the first half of the year came from foreign capital, and that there was a higher presence of investors with “greater risk appetite”.
Office and retail assets were the sectors most sought after by investors.
Industrial and Logistics: also suffering from a lack of quality supply
In retail, the rise has been moderate, which can be considered a “negative surprise”, given the reduction of the personal income tax surcharge, but is probably due to an increase in inflation.
The impact of tourism has also been clearly felt, and is “very positive” step, with Lisbon and Porto accounting for 97% of street commerce deals. In this manner, Lisbon is moving forward in the amount and quality of their retail offerings, while Porto saw the recovery of the Santa Catarina street area the emergence of new areas, such as Clérigos, Ribeira and Aliados.
In the industrial and logistics sectors, there is a shortage of quality supply and demand pressure may allow prices to rise in the short term.
In the first six months of the year 20 hotel units opened and growth is expected to continue until 2019 (82 units).
Original Story: Diário Imobiliário – Lusa
Translation: Richard Turner