There is a distinctly positive buzz about Portugal, delegates heard at the Why Iberia? Iberian Investment briefing, organised by Real Asset Media and Iberian Property, which took place yesterday at Nuveen’s headquarters in the City of London.
“After 20 years of subdued growth, 2022 is a turnaround year for Portugal, that has the fastest GDP growth rate in the Eurozone,” said Manuel Puerta da Costa, board member, APFIPP (the Portuguese Association of investment and pension funds). “The service economy is booming and tourism has recovered strongly as foreigners have come back in huge numbers.”
The sense of optimism is buoyed by the lowest ever unemployment rate (6.6%), the speed at which the Government is reducing public debt, rating agencies’ improved outlook and the almost €60 billion the country will receive in EU grants.
“EU funds, which amount to about 30% of GDP, will continue to support growth and the transformation of the economy,” said Puerta da Costa.
The positive economic backdrop is one reason why investors from all over the world are deploying capital in the country. Foreign capital accounts for 78% of investments in real estate in Portugal, according to CBRE data.
Geography is another reason: “Lisbon is 3,000 kilometres from Moscow. The war is very far away. It feels safe,” said Puerta da Costa.
“Portugal is benefitting from problems elsewhere and the nearshoring phenomenon has been greatly enhanced,” said Nuno Nunes, senior director, head of capital markets, CBRE Portugal. “Location is key. Companies that wanted to relocate to CEE are coming here instead.”
Logistics is the most vibrant sector as the country catches up with the European trend and the “Atlantic corridor” becomes increasingly important.
“It is a significantly undersupplied sector in Portugal,” said Nunes. “Nearshoring and e-commerce provide a solid expansion basis.” Vacancy rates in the sector are extremely low: 2.2% in Lisbon and 1% in Porto.
Investments have so far focused on the two main cities, but that is changing as new hubs are being created in secondary towns and near connections with Spain, he said.
“Logistics is a bright spot, but margins are tight and there’s not much room to increase rents,” said Nunes.
Residential is another fast-growing sector. “We’re seeing a huge wave of investments in resi, both in cities and in seaside resorts,” said João Torroaes Valente, partner, Morais Leitão. “Inflation and higher interest rates are not affecting the market because the demand is so huge.”
The strength of demand makes development a strong sector, even in a worsening economic environment, despite higher construction costs and despite lack of financing.
“Portugal is undersupplied in many sectors, there’s no vacant space in several asset classes and that’s a fact,” said Nunes. “The good thing about growing foreign investment is that the positive effects for Portugal will be long-lasting.”