Portuguese commercial property investment totalled €1.3 billion during the first nine months of 2015, and is forecast to reach a record €2 billion by the year-end – an exceptional 178% year-on-year increase.
Investment activity during the first three quarters of the year was dominated by an active retail sector, which accounted for 57% of total market activity. Transaction volumes were boosted by the sale of two large retail portfolios to US equity funds Lone Star and Blackstone. As a result of the strong international interest in Portuguese real estate, cross-border capital accounted for 95% of commercial investment during Q1-Q3. The strength of demand led to a significant hardening of prime retail yields, which reached a record low of 5.0% in Q3 2015.
Boosted by the country’s continued economic recovery, Lisbon’s occupier market also improved significantly in Q1-Q3 2015, with office take-up increasing by 49% year-on-year to c. 105,000 sq m. With confidence in Lisbon’s office market slowly being restored, the demand for new stock is relatively high. However, development activity remains at low levels, and the city-wide vacancy rate fell for the fifth consecutive quarter to 11.3% in Q3.
Heena Kerai, Research Analyst, Knight Frank commented: “Investor appetite for assets in Portugal is forecast to remain strong in the coming months. The retail sector is expected to remain the most active, while office volumes are likely to stay relatively subdued, as the availability of investment product remains at low levels. Nevertheless, prime yields in Lisbon are forecast to harden further across both sectors by mid-2016, to reach new record lows for the market.”