MARKETBEAT
COUNTRY SNAPSHOTS
PORTUGAL
A Cushman & Wakefield Research Publication
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ECONOMY
OFFICE SECTOR
RETAIL SECTOR
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Q3 2014
MARKETBEAT
ECONOMIC SNAPSHOT
PORTUGAL
Q3 2014
A Cushman & Wakefield Research Publication
RETURN TO GROWTH
MARKET OUTLOOK
Following four consecutive quarters of
growth in 2013, the Portuguese economy
contracted in Q1 2014 and rebounded
again in Q2, by 0.3% q/q. Consumer
spending increased in Q2, with recent
strong retail sales data (1.3% y/y in August) pointing to a
continuation of this upward trend. Falling unemployment and a
rise in consumer confidence (currently at a 7-year high) will
support consumers, while fiscal austerity and high corporate
indebtedness will act as drags. Exports are expected to remain
the main driver of growth in the medium term despite slowing
recently.
GDP:
Growth of around 1% expected for 2014,
followed by an acceleration in 2015.
Inflation:
Expected to pick up gently in 2015.
Interest rate:
On hold.
Employment:
Further gradual improvements expected.
EXPORT-DRIVEN GROWTH
Portugal has undergone a significant external adjustment, with the
current account deficit of nearly 13% of GDP in 2008 swinging
into a 0.5% surplus in 2013. Despite a return to negative current
account balance in H1, mainly due to a drop in exports of refined
fuels, net exports are expected to contribute to growth in the
coming quarters on the back of rising demand from the country’s
main export markets, particularly Spain. Higher exports
combined with booming tourism and rising competitiveness are
expected to spur investment.
FURTHER FISCAL CONSOLIDATION NEEDED
Following Portugal’s exit from its EU/IMF bailout programme in
May, no additional austerity measures have been announced as
the resumption of growth has led to additional tax revenues and
lower social security expenditure. However, the economy
remains vulnerable to future shocks and further progress is still
needed to consolidate public finances and safeguard financial
stability. The government-backed rescue in August of Banco
Espírito Santo, Portugal's largest listed bank, puts further
pressure on public finances.
ECONOMIC SUMMARY
ECONOMIC INDICATORS*
GDP growth
2011
-1.8
2012
-3.3
2013
-1.4
2014F
0.9
2015F
1.3
Consumer spending
-3.6
-5.2
-1.4
1.4
0.8
Industrial production
-1.0
-6.2
0.6
1.9
2.4
-12.5
-15.0
-6.3
1.4
3.4
12.7
15.5
16.2
14.1
13.6
Investment
Unemployment rate (%)
Inflation
3.7
2.8
0.3
-0.2
0.6
US$/€ (average)
1.39
1.28
1.33
1.33
1.24
US$/€ (end-period)
1.29
1.32
1.38
1.26
1.22
1.4
0.6
0.2
0.2
0.1
10.3
10.7
6.3
3.8
3.5
Interest rates: 3-month (%)
Interest rates 10-year (%)
NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Oxford Economics Ltd. and Consensus Economics Inc
ECONOMIC & POLITICAL BREAKDOWN
Population
10.5 million (2013)
GDP
US$ 227.6 billion (2013)
Public sector balance
-4.9% of GDP (2013)
Public sector debt
128% of GDP (2013)
Current account balance
0.5% of GDP (2013)
Parliament
Social-Democratic Party and Popular
Party coalition
President
Aníbal Cavaco Silva
Prime Minister
Pedro Passos Coelho
Election dates
October 2015 (Legislative)
January 2016 (Presidential)
OUTLOOK
The positive momentum is expected to continue, with the
economy forecast to grow by 0.9% in 2014 and 1.3% next year.
The drag from net trade in Q1 faded in Q2 and exports are
expected to expand more strongly in the second half of the year
and grow by an average of 4% in 2014-17, subject to downside
risks from sluggish growth in the eurozone. Private consumption
and investment remain constrained by fiscal austerity, elevated
unemployment and high corporate debt levels. Unemployment,
although still twice as high as it was in 2008, has been falling
rapidly from its peak in early 2013 and more rapid than currently
forecast improvements present an upside risk to growth.
Cushman & Wakefield LLP
43-45 Portman Square
London W1A 3BG
www.cushmanwakefield.com/research
ECONOMIC ACTIVITY
5.0
5.0
2.5
2.5
0.0
0.0
-2.5
-2.5
-5.0
2004
2006
2008
2010
GDP GROWTH (annual %) - left
2012
2014 F
-5.0
INFLATION (annual %) - right
Source: Cushman & Wakefield
This report has been produced by Cushman & Wakefield LLP or use by those with an interest in commercial property solely for information purposes. It is
not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources
which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. The
report also refers to these economic sources: Consensus Economics Inc.; The Economist; Reuters; Capital Economics; Oxford Economics Ltd; Centre for
Business & Economic Research. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information
contained herein and Cushman & Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of
opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part. Should you not wish to
receive information from Cushman & Wakefield LLP or any related company, please email [email protected] with your details in the body of
your email as they appear on this communication and head it “Unsubscribe”. ©2014 Cushman & Wakefield LLP. All rights reserved.
MARKETBEAT
OFFICE SNAPSHOT
PORTUGAL
Q3 2014
A Cushman & Wakefield Research Publication
OVERVIEW
The performance of the office market in
Lisbon is moving from strength to strength,
albeit from a relatively low base. This is
against better economic news despite a
recent slowdown as exports dropped due
to sluggish demand in the eurozone.
OCCUPIER FOCUS
Q3 was the strongest quarter of 2014 in terms of take-up,
reaching 37,550 sq.m. This brings the year’s total on a level par
with the 78,000 sq.m 2013 total. The main driver of activity
continues to be the need to optimise occupancy costs, with high
activity from call centres and IT sector companies. There is a
notable preference for quality premises, accompanied by a trend
to consolidate in a single location by several major groups; and
occupiers are enacting their plans now while the market is still
somewhat tenant friendly.
MARKET OUTLOOK
Prime Rents:
Prime rents under downward pressure despite
better take-up as supply needs to fall first.
Prime Yields:
Interest from domestic and international
investors see yield sharpen.
Supply:
Supply stabilizes as speculative development is
withdrawn and older space removed.
Demand:
Overall demand is improving but the majority
remains driven by cost cutting measures.
PRIME OFFICE RENTS – SEPTEMBER 2014
MARKET (SUBMARKET)
Lisbon (Zone 1)
€
SQ.M/MTH
19.00
€
SQ.M/YR
228
US$
SQ.FT/YR
26.8
GROWTH %
1YR 5YR CAGR
2.7
0.0
Lisbon (Zone 2)
16.00
192
22.5
0.0
-1.2
Lisbon (Zone 5)
15.00
180
21.1
0.0
-1.9
Lisbon (Zone 6)
11.00
132
15.5
0.0
-4.0
PRIME OFFICE YIELDS – SEPTEMBER 2014
Despite the more robust demand levels emerging developers are
still adopting a wait-and-see approach reflected in the fact that
there is only 32,000 sq.m of new under construction underway of
which 63% already has pre-lets in place. The largest scheme in the
pipeline is the 13,900 sq.m developed for owner occupation by
EDP. While the vacancy is still high at 12.0%, with less speculative
development on the horizon, the rate will decline as some space
is eroded and some is withdrawn from the market with the aim
of reconverting to alternative uses.
MARKET (SUBMARKET)
(FIGURES ARE GROSS, %)
INVESTMENT FOCUS
With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of
Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very
much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used
as a comparable for any particular property or transaction without regard to the specifics of the property.
OUTLOOK
There are signs that the Portuguese real estate market is on the
road to recovery although the speed at which this happens will
be linked to the continued growth in the economy. For
investments this is partly driven by the increased willingness of
banking institutions to loosen their lending criteria and make
more capital available.
Cushman & Wakefield LLP
43-45 Portman Square
London W1A 3BG
www.cushmanwakefield.com/research
LAST
QUARTER
6.50
LAST
YEAR
7.75
HIGH
7.75
10 YEAR
LOW
5.75
Lisbon (Zone 2)
7.25
8.00
8.50
8.50
6.00
Lisbon (Zone 5)
7.25
7.50
8.50
8.50
6.00
Lisbon (Zone 6)
9.00
10.00
10.25
10.25
6.25
NOTES:
Lisbon Zone 1: Avenida da Liberdade (Prime CBD)
Lisbon Zone 2: Avenidas Novas (CBD)
Lisbon Zone 5: Parque das Nacoes
Lisbon Zone 6: Western Corridor (Decentralised)
Yields
RECENT PERFORMANCE
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
-6.0%
-8.0%
Sep-04
Sep-06
Yield - Prime
Rental Growth - Prime
Sep-08
Sep-10
Sep-12
Rental growth (y/y)
Q3 saw €28.7 million invested into the Portuguese office market
over 5 deals. The largest was the 5,600 sq.m acquisition of
Marquês Pombal 14 in Lisbon by a private Chinese investor from
AXA Portugal. Interest in the sector is picking up as investors are
more aware of the kind of product and indeed returns available.
However, alongside this prime yields are under downward
pressure as interest and activity increases across the country.
The level of available product is on the rise as some local and
international investors are liquidating their funds and thus putting
product on the market for sale.
Lisbon (Zone 1)
CURRENT
QUARTER
6.25
Sep-14
Yield - Country Average
Rental Growth - Country Average
Source: Cushman & Wakefield
This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes.
It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources
which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete.
No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman &
Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change.
Our prior written consent is required before this report can be reproduced in whole or in part. Should you not wish to receive information from Cushman
& Wakefield LLP or any related company, please email [email protected] with your details in the body of your email as they appear on this
communication and head it “Unsubscribe”. ©2014 Cushman & Wakefield LLP. All rights reserved.
MARKETBEAT
RETAIL SNAPSHOT
PORTUGAL
Q3 2014
A Cushman & Wakefield Research Publication
Economic growth has now been positive
for three consecutive quarters and further
increases are expected for the rest of this
year and 2015. Similarly, the retail market
started to recover at the end of 2013 with
improved consumer sentiment. Retail sales growth has been
mostly positive for almost a year now and has stabilised. There is
increased interest from foreign investors and unemployment has
been falling since early 2013, leaving mostly external factors as
the main risks to Portugal’s economic recovery.
OCCUPIER FOCUS
Occupier demand in Q3 remained skewed towards prime
locations, in particular shopping centres and high street units in
Lisbon’s main streets such as Avenida da Liberdade, Baixa and
Chiado and Porto’s Clérigos zone which continue to outperform.
Rents remained unchanged over the third quarter. Larger
retailers are focused on consolidation with new concepts,
relocations to larger space and only cautious expansion.
The only project due to be completed this year is Immochan’s
Alegro Setúbal redevelopment of its hypermarket, which is
almost fully let. The development pipeline remains very sluggish
due to both funding and feasibility issues for new projects. This
has led to developers focusing on adding value to existing
schemes through active asset management.
INVESTMENT FOCUS
OUTLOOK
The occupational market is likely to have a busy year-end, with
several leading retailers taking up space in shopping centres and
on the high street. These are likely to remain the most active
sub-sectors on the back of the arrival of new domestic and
international brand, and the expansion of existing operators.
Prime Rents:
Strong demand to exert upward pressure on
rents.
Prime Yields:
Further hardening due to strong demand from
international investors.
Supply:
Limited pipeline.
Demand:
Increased demand for prime high street units.
PRIME RETAIL RENTS – SEPTEMBER 2014
HIGH STREET SHOPS
Lisbon (Chiado)
Lisbon (Avenida Liberdade)
RETAIL PARKS
Portugal
SHOPPING CENTRES
Portugal
€
SQ.M/MTH
92.50
€
SQ.M/YR
1,110
US$
SQ.FT/YR
130
GROWTH %
1YR 5YR CAGR
2.8
2.9
82.50
€
SQ.M/MTH
8.50
€
SQ.M/MTH
72.50
990
€
SQ.M/YR
102
€
SQ.M/YR
870
116
US$
SQ.FT/YR
12.0
US$
SQ.FT/YR
102
3.1
2.5
GROWTH %
1YR 5YR CAGR
0.0
-3.2
GROWTH %
1YR SQ.M/MTH
3.6
-2.6
PRIME RETAIL YIELDS – SEPTEMBER 2014
HIGH STREET SHOPS
(FIGURES ARE GROSS, %)
CURRENT
QUARTER
6.00
Lisbon (Chiado)
Lisbon (Avenida Liberdade)
RETAIL PARKS
(FIGURES ARE GROSS, %)
Portugal
SHOPPING CENTRES
(FIGURES ARE GROSS, %)
Portugal
LAST
QUARTER
6.25
LAST
YEAR
7.00
6.00
6.25
CURRENT
LAST
QUARTER QUARTER
9.25
9.75
CURRENT
LAST
QUARTER QUARTER
6.75
7.00
7.25
LAST
YEAR
10.50
LAST
YEAR
7.75
HIGH
7.00
7.25
HIGH
10.50
HIGH
7.75
10 YEAR
LOW
6.00
6.00
10 YEAR
LOW
5.75
10 YEAR
LOW
5.00
With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of
Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very
much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used
as a comparable for any particular property or transaction without regard to the specifics of the property.
RECENT PERFORMANCE
8.00%
20.0%
7.00%
10.0%
6.00%
0.0%
5.00%
-10.0%
4.00%
-20.0%
3.00%
-30.0%
Sep-04
Sep-06
Yield - Prime
Sep-08
Sep-10
Sep-12
Rental growth (y/y)
There were only a handful of deals in the third quarter, with
around €30 million worth of retail assets traded. High street
retail in Lisbon, particularly on Av. Liberdade and Chiado,
continues to attract demand from private and institutional
investors, while international investors have widened their
requirements to include shopping centres, retail parks and factory
outlet centres but also supermarkets and hypermarkets. Prime
yields hardened further, by around 25-50 bps, with the largest
shifts recorded for retail parks.
MARKET OUTLOOK
Yields
OVERVIEW
Sep-14
Rental Growth - Prime
Source: Cushman & Wakefield
Cushman & Wakefield LLP
43-45 Portman Square
London W1A 3BG
www.cushmanwakefield.com/research
This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes.
It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources
which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete.
No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman &
Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change.
Our prior written consent is required before this report can be reproduced in whole or in part. Should you not wish to receive information from Cushman
& Wakefield LLP or any related company, please email [email protected] with your details in the body of your email as they appear on this
communication and head it “Unsubscribe”. ©2014 Cushman & Wakefield LLP. All rights reserved.
MARKETBEAT
INDUSTRIAL SNAPSHOT
PORTUGAL
Q3 2014
A Cushman & Wakefield Research Publication
OVERVIEW
There is more optimism surrounding the
Portuguese industrial market, linked to
better prospects anticipated for the
economy despite a slowing of the
eurozone – a key trading partner. Despite
better levels of activity, occupational real estate fundamentals are
slow to react, with rents stable and likely to remain so for the
time being.
MARKET OUTLOOK
Prime Rents:
Prime rents hold firm but landlords holding
lower quality stock will need to reduce rents.
Prime Yields:
Robust demand levels for limited amounts of
quality stock have seen yields sharpen.
Supply:
The complete lack of speculative development
is helping to see falls in overall supply levels.
Demand:
There are limited requirements, and cost
cutting remains the key driver of demand.
PRIME INDUSTRIAL RENTS – SEPTEMBER 2014
OCCUPIER FOCUS
There is almost no speculative development in the market at the
moment and this will, over time, help to rebalance the market
fundamentals as supply is eroded and incentive packages are
withdrawn, positive rental growth will follow.
LOGISTICS LOCATIONS
In the current context however, while activity levels have
improved they are supported, in the main, by current occupiers
taking advantage of the pressurised low rent environment and are
moving to better quality accommodation if available, while at the
same time reducing their occupancy costs. Nonetheless, there
are initial signs of some companies revisiting their expansion plans
and some have started to act to ensure they secure the best
premises for their needs.
PRIME INDUSTRIAL YIELDS – SEPTEMBER 2014
US$
SQ.FT/YR
5.28
Porto
4.00
48.0
5.63
LOGISTICS LOCATIONS
(FIGURES ARE GROSS, %)
GROWTH %
1YR 5YR CAGR
-6.3
-1.3
-11.1
2.7
Lisbon
CURRENT
QUARTER
8.25
LAST
QUARTER
8.75
LAST
YEAR
9.75
HIGH
9.75
10 YEAR
LOW
7.00
Porto
9.00
9.50
10.25
10.25
7.25
With respect to the yield data provided, in light of the lack of recent comparable market evidence in many areas of
Europe and the changing nature of the market and the costs implicit in any transaction, such as financing, these are very
much a guide only to indicate the approximate trend and direction of prime initial yield levels and should not be used
as a comparable for any particular property or transaction without regard to the specifics of the property.
RECENT PERFORMANCE
11.00%
15.0%
10.0%
9.00%
5.0%
7.00%
0.0%
-5.0%
5.00%
-10.0%
3.00%
-15.0%
Sep-04
Sep-06
Yield - Prime
Rental Growth - Prime
Sep-08
Sep-10
Sep-12
Rental growth (y/y)
No significant deals closed in Q3. However, there are signs of
rising interest levels from both domestic and international
investors. Logistics parks with lease lengths of 3 to 5 years are
seeing increased levels of interest and demand has also risen for
sale & leaseback opportunities on a ten-year plus horizon. Some
further pick-up in activity is anticipated if the right product comes
to market as the sector is generally viewed as being underpriced
at the moment. The improved environment has seen some
competitive bidding situations, reflected in a sharpening in prime
yields in Lisbon and Porto over the quarter to 8.25% and 9.00%
respectively. However, logistics and distribution centres with
longer term (15-25 years) lease contracts in place are attracting
investor interest at more competitive pricing, with yields ranging
7.00%-7.25%.
€
SQ.M/YR
45.0
Yields
INVESTMENT FOCUS
Lisbon
€
SQ.M/MTH
3.75
Sep-14
Yield - Country Average
Rental Growth - Country Average
Source: Cushman & Wakefield
OUTLOOK
While the outlook for the Portuguese industrial sector is brighter
than it was twelve months ago, the impact of the domestic
economic recovery on industrial and logistics activity over the
remainder of 2014 will be limited. However, over the medium
term, with more visible signs of a recovery and higher
consumption, the likelihood of a reversal of the current situation
is high. Indeed, quality assets are expected to be in short supply
and therefore boosting rental levels and putting upward pressure
on pricing as well.
Cushman & Wakefield LLP
43-45 Portman Square
London W1A 3BG
www.cushmanwakefield.com/research
This report has been produced by Cushman & Wakefield LLP for use by those with an interest in commercial property solely for information purposes.
It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources
which Cushman & Wakefield LLP believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete.
No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and Cushman &
Wakefield LLP shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change.
Our prior written consent is required before this report can be reproduced in whole or in part. Should you not wish to receive information from Cushman
& Wakefield LLP or any related company, please email [email protected] with your details in the body of your email as they appear on this
communication and head it “Unsubscribe”. ©2014 Cushman & Wakefield LLP. All rights reserved.
COUNTRY
SNAPSHOTS
PORTUGAL
Q3 2014
A Cushman & Wakefield Research Publication
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