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Real Estate Investment in Portugal to Continue Strong for Another 12 Months

6 November 2017

In the third quarter of 2017, 44% of players acting in the real estate market in Portugal reported that they intend to strengthen their investment strategy, compared to the 31% who prefer to focus on portfolio management or divestment (25%).

The 3rd edition of Deloitte’s “Portuguese Real Estate Investment Survey” revealed that an increase in volumes and transaction prices are expected in the residential, commerce/services and hotel sectors for the next three months, associated with greater stability in the rates of return in the various sectors.

The report also discloses that the companies that intend to invest are increasingly focusing on “Value-added” (69%) assets, with the expectation that, in the long term, they will be able to increase cash flows generated by these assets. Conversely, assets classified as “Opportunistic deals” or “Core” have lost importance with regards to current investment intentions.

Jorge Marrão, a Partner and Real Estate sector leader for Deloitte, points out that “the study indicates that investment in the real estate industry has reached its peak. Professionals are reluctant to focus on maintaining their portfolios, believing they are facing a scenario that is unique in the history of Portuguese real estate, which will bring them the associated benefits.”

Mr Marrão believes that investors aim will be to subject these value-added assets to, for example, upgrades or repositioning. “In this way, they will most likely be able to charge higher rents, raise occupancy rates and attract higher quality tenants. In these conditions, the increase in profitability will be relatively quick. After maximising the asset’s potential, the next step would be to sell the properties again, this time at a higher value, to finance new investments,” he stated.

Still, according to the study, the primary sources of financing for the acquisition of real estate next year will be the banking industry and sovereign funds (38% each). Regarding the origin of funding, it will be mainly European (75%) and North American (63%), with Asia and the Middle East accounting for 31% and 25%, respectively. From the insider’s point of view, funds of funds (50%) and insurance companies (43%) are the primary buyers of real estate in Portugal.

Regarding the valuations attributed to real estate by the external evaluators, respondents say that they reflect the fair value of the assets (43%) or that they are slightly overvalued (29%) but in line with market changes. Some 36% consider, however, that the evaluations carried out do not anticipate market trends.

The political situation appears, along with the growth of supply, foreign investment and the entry of new agents, as the variables that will most positively impact the sector in the next three months.

The “Portuguese Real Estate Investment Survey” is a quarterly Deloitte study that assesses the perception of the agents in the Portuguese real estate sector about the evolution of the market and their current and future strategies. The leading players in the sector – real estate fund managers, real estate funds, banks, insurance companies, Private Equity and other companies participated in this edition. Responses were collected during September and October 2017.

Original Story: Diário Imobiliário

Translation: Richard Turner