Iberian Summit: foreign capital more interested in Portugal

Strong fundamentals are underpinning investors’ interest in the Portuguese market, delegates heard at Real Asset Media’s Iberian Investment Summit, organised in partnership with Iberian Property, which took place yesterday at Nuveen’s offices in the City of London.

Nuno Nunes, Head of Capital Markets, CBRE Portugal

GDP growth of 2.6% forecast for 2023 is well above the Eurozone average and inflation and unemployment are down. Portugal’s risk premium is below that of Spain, Italy and Greece.

“International investors’ interest has increased”, said Nuno Nunes, head of capital markets, CBRE Portugal. “We’ve seen many new investors looking at the market recently, including some really important ones, so we expect to see more transactions happening in H2. I believe that this year we may even break investment records in Portugal.”

Foreign capital accounts for 82% of total investment volumes in the Portuguese market. Lisbon has surpassed Barcelona as an investment destination.

“Investors’ profile has changed in the last 12 months and now we have more developers, private investors and asset managers,” said Nunes. “We’re seeing North American investment funds and also capital from Spain and Portugal itself.”

The ECB’s implementation of the fastest increase in interest rates in its history is of course having a negative impact on the market and has led to a decrease in investment volumes.

“The market is trying to understand what is happening,” said Nunes. “Most institutional investors need financing, but even those who don’t are still trying to work out what the correct valuations are. No one wants to buy in a falling market.”

Investment volumes have declined to €400 million in H1, said Fernando Ferreira, vice-chairman of the board, Square Asset Management: “The best estimate for the year is €2 billion, but the pace will have to speed up in H2.”

Despite the current hiatus, deals are still happening, especially in the €50 million range or below, which is the most dynamic segment of the market. There are very few deals above €100 million.

“We’re seeing investors across the risk profile in the market, not just core, and developers as well,” said Nunes. “They are interested in all sectors, from logistics to residential to offices to retail, because they all have very good fundamentals.”

Retail has made a real comeback in Portugal: sales have increased by 26%, exceeding pre-pandemic levels. After years of inactivity, shopping centres are reinventing themselves as experiential meeting places.

“Footfall is still not back to 2019 levels but retail is outperforming and defying expectations,” said Nunes. “Shopping centres, retail parks and the high street are all doing well, retail areas are expanding and we’re also seeing rental growth. The sector is providing the best risk-adjusted returns.”

The hotel sector is attracting a lot of attention because of the return of international tourism. “Prospects for the summer look great and we’re set to have the highest number of visitors ever this year, so the sector is looking very positive,” said Nunes.

There’s no oversupply in the office sector, but new stock rents at a premium because it is scarce. Vacancy rates are historically low and the last quarter has seen the best take-up rates ever.

Logistics is another fast-growing sector: take-up increased by 205% to 160,000 sq m last year. Even if it does not keep the same pace, it is expected to remain above the five-year average.

“Huge increases in logistics rents are being negotiated now”, said Nunes. “We’ re seeing several cases of industrial players creating new projects, big logistics operators and some large retailers relocating operations to Portugal to distribute to the rest of Europe. If 2023 won’t be the best year ever it’s only because of lack of available space, not because of lack of demand.”