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Rental Costs for Street Stores Soaring

19 January 2019

The laws covering rentals and tourism are driving up rents for street stores. This year, rents are expected to increase by up to 10%.

The search for good locations by well-known store brands is driving up rental costs for street stores, while the cost of renting in shopping centres has remained virtually unchanged. In Lisbon and Porto, street store rental costs rose by 3.8% to 20% in 2018. This year, the forecast is for further increases of up to 10%. In prime areas, including historic areas and downtown, the lack of supply is likely to put further pressure on prices.

“Retail rents may see further growth, especially in historic areas of Lisbon, since demand is quite high,” says Patrícia Araújo, head of retail at JLL Portugal. Carlos Récio, the retail director at CBRE, is forecasting increases of between 5% and 10%. “In prime areas, where properties are still available, rents are likely to rise further.”

In Chiado, the price per square meter may increase from 130 to 140 euros, Cushman & Wakefield believes. This location, and in particular Rua Garrett, is the area where the pressure on prices is highest, due to the lack of supply. In Porto, demand is focusing on Rua de Santa Catarina, causing rents to skyrocket by 15.4% last year, according to Cushman & Wakefield, to a high of 75 euros per square meter.

Tourism is boosting demand

Tourism is currently highly concentrated in Lisbon and Porto but is also slowing gaining strength in urban areas like Braga and Guimarães, in particular in the historic centres, says Carlos Récio.

“Shopping centres have undergone a boom for some years now and, even though they are still a major focus of consumer buying, retailers no longer consider them to be an innovative strategy and are now investing more and more on street-facing shops, while remaining in the malls as well,” said Patricia Araujo. “Tourism is one of the factors that explains this interest since it has brought a newly refreshed movement to the historic areas of the city due to the high footfall that [tourism] is generating,” she continued. Only last year, 19.8 million tourists visited Portugal, 1.6% more than in 2017. “This movement also led to a resurgence of curiosity on the part of the Portuguese, who began looking for ways to live and share experiences and increasingly like to go out and enjoy all the options that retail street entertainment has to offer,” she concluded.

The 2012 urban rental law also helped the new dynamic in retail street shopping, allowing for the sale and renovation of existing buildings, placing new high-quality offerings on the market. In 2018 alone, “the number of businesses operating in the street retail format was higher than in shopping centres, representing 66% of a total of 640 transactions”, says Marta Esteves Costa, director of research and consulting at Cushman & Wakefield.

Shopping malls accounted for only 24%, “largely due to the low level of supply available in shopping centres”, although there was still “a high attractiveness of shopping centres, with sales growing by 4.3% and visitors by 3.6% in to the third quarter of 2018, according to data from APCC, the Association of Shopping Centres. ”

In the last four years, rents in the prime shopping centres have not been experiencing “big swings,” nor does Carlos Récio believe that this will soon be the case, though large shopping centres such as Colombo and NorteShopping have already announced expansion plans. There may be a “decrease in the number of discounts and benefits” for retailers in the secondary shopping centres, he warned.

Original Story: Dinheiro Vivo – Ana Marcela

Translation: Richard Turner