Portugal property outlook for the 2nd half of 2023

• 18 September, 23

Although many EU countries end 2023 with GDP growth, the real estate sector still faces a struggle in the face of price adjustments due to inflation, European Central Bank (ECB) policies, and the consequences of the war in Ukraine.

Short and long-term forecasts for the real estate sector

Although the above seems to paint a less-than-encouraging picture, we must consider that this is the short-term perspective. As for the long term, however, the outlook is and remains more positive, so much so that BNP experts believe that logistics will be one of the best-performing asset classes over the next 5 years. In fact, the growth of new occupiers, from a very wide range, is expected to continue in 2024, supporting demand, and as long as it is possible to attract a substantial workforce, which does not cause widespread disposal of buildings, rents will also remain high, with positive consequences for revenues.

As for offices, the latest office data indicates that not only has telecommuting not been adopted on as large a scale as previously thought, but assets in major business districts have proven to be very resilient over the long term, attracting sustained tenant demand. Leases are also expected to grow at around 2% per year, generating good levels of return for main investors.

The retail sector is still adapting to the e-commerce boom and, in general, to the population’s new consumption habits. Although the business units in large centres have already been revalued, the prospects for value creation remain uncertain. In fact, the rate of disuse of these assets is still high and many of them have to review their positioning, with the rise in prices and their impact on disposable income, with the pace of sales expected to slow down in the coming months. On the other hand, there are still healthy retailers and prime leases continue to be successful. Furthermore, the strong recovery in tourism should support consumption and the high street sector in prime resorts.

Finally, sectors such as healthcare and residential are also affected by price and profitability adjustments, mainly due to exogenous macroeconomic factors. However, unlike those presented above, these two segments can count on the support of long-term trends that will not be as affected by economic crises, such as the growing average age of the population, urbanization, and the reduction of household members. “For this reason, we expect healthcare to be the best-performing area over the next 5 years, while residential will have to settle for lower yields over the same period due to slower readjustments and lower capital growth.” Despite this, this segment will still be the second best performing segment after healthcare, on a risk-adjusted basis.

Cre: Portugalnews