Impact of COVID-19 in Lisbon Real Estate
The world we know has been turned inside out with forced confinement by the new coronavirus. We believe that there are habits that are here to stay and we will see a paradigm shift with an impact on the real estate market. Families leaving the cities for the periphery, smaller offices and in the centre of the cities (or almost virtual), greater interest in holiday homes and villas, reinforcement of the importance of the house, conversion of local accommodation for housing.
It is these trends that we will seek to explore in this article.
Remote working is here to stay
The pandemic promoted widespread and large-scale adoption of remote work. Companies realized that employees can be more productive working from home, because they save time in transportation and extended lunches, meetings are faster, and there are fewer interruptions (very typical in open spaces). Those with small children and/or school-age children, end up having more work and being more strenuous, but in a future situation of normal daily life, children return to day-care centres and schools, and working from home can have immense benefits, for both workers and companies.
Let’s look at some of the trends that we hope to observe in the near future:
- Reduced office space: For companies, office-related costs are an important component of their fixed costs. With more employees in teleworking, companies will be able to have their headquarters in premium buildings in the city centre, in smaller spaces, therefore more cost efficient. Warren Buffet himself questions whether people will return to the offices at all;
- Geographic mobility / Migration of cities: For employees, teleworking has the added advantage of geographical mobility. Daily commuting for companies and the daily loss of hours in traffic queues or public transport are no longer necessary. Therefore, living relatively close to work is no longer an advantage and employees can choose to live where they want, on the outskirts of cities, on the beach or in the countryside, and can even travel to other countries while working. Houses outside cities are much cheaper, and the quality of life can be better;
- Holiday Home / Villas: Being confined for months in an apartment in the middle of the city, surrounded by thousands of people, potential transmitters of the virus, without catching air and seeing the sun, without outside space for physical activity – let’s face it, it could be more pleasant! This means that many people are currently considering the advantage of having a 2nd home in the province, outside the large population centres. Or, exchange your Lisbon apartment for a house, where they have more space and can enjoy the outside space;
- Conversion of short term rental apartments to housing: The pandemic is being particularly adverse for activities related to leisure and tourism, in particular with hotels and tourist accommodation. Many homeowners will consider selling their apartments from tourism accommodation or switching to traditional rental. This will trigger the supply available and cause a price drop in the most tourist areas. On the other hand, it will allow the attraction of more stable and young residents, which will also be beneficial for the rejuvenation of these areas. The prospects for this segment are not very optimistic, but it is nevertheless in the capacity to overcome adversity that good deals are made, for those who can resist.
- Increase in the number of divorces / marital separations: confinement forces couples and families closer together, which is positive, except when they are no longer on the same frequency. In China, the number of divorces has increased in post-confinement, and the same is expected in Portugal. This means more families selling and looking for (smaller) houses.
Change of paradigm in sight?
We may be witnessing a complete change in the paradigm that was in effect until a few months ago, in which it pointed to a massive concentration in the cities, with young people looking for the central areas for the dynamics and scope of the offer of events, from yoga and meditation in the park, trendy restaurants and shops , concerts, the vibrant multicultural context due to tourism, etc … Being in the centre meant being close to the epicentre of events, where everything happens, where everyone is. This led many companies to have to open offices in the centre, and to return to privilege the centre of Lisbon compared to other centralities of the 90s and the beginning of the century, as is the case of TagusPark in Oeiras, which ended up losing its former attractiveness (of course, this opinion can be contested).
The volume of online purchases in Portugal until the end of 2019 was relatively low, when compared to the Nordic and Anglo-Saxon countries. We were recently witnessing an explosion in the delivery of meals through digital platforms such as UberEats and Glovo , but, for example, online shopping in supermarkets still had relatively low levels of membership (largely because of those who are unable to offer services) immediate). Not to mention shopping for clothes, electronics and others. The pandemic changed all this very quickly, catching supermarkets unawares to the point of having delivery times greater than 1 month. In the United States and the United Kingdom, a large number of physical stores were closed for some time and started to favour the online channel. This makes retail spaces less attractive, and on the other hand, logistical operations take on greater importance.
It will be interesting, from now on, to observe the behaviour of the student accommodation market. The offer of online training has been increasing considerably over the last few years (and has now exploded), and MBA’s are starting to appear even entirely online. Even though part of the courses may work in blended mode (both face-to-face and distance combination), more and more the online offer will gain more expression. This does not necessarily mean that fewer young people can come to study in person for universities, because the social interaction component is particularly important at this stage in their lives. However, it is possible that some behavioural changes will arise with a direct impact on real estate.
For all that has been said, we hope to note:
- Rotation of assets from Offices, Retail and Hospitality to Residential and Logistics;
- Increased demand for vacation homes and villas;
- Relocation of demand to areas with differentiated activities ( eg : beaches, countryside, surfing, other sports) and less population density;
- Conversion of local accommodation to housing.
Expected price evolution
Regarding prices, it should be remembered that real estate is a type of low liquid asset, which reacts more slowly to economic shocks, and as such, although a correction is expected, especially in terms of capital appreciation, it is still early to understand what will be the magnitude. In our opinion, the areas with the greatest potential impact will be the most central areas and those most exposed to tourism and local accommodation (eg. Santa Maria Maior and Misericórdia).
With the foreseeable change from a seller’s market to a buyer’s market, the times when houses sold in 2 to 3 months are ending, and absorption times are expected to increase beyond 6 months. This was a trend that had been observed even before the pandemic, and we already expected the market to enter a more rational cycle of appreciation, as we indicated in our last Lisbon Real Estate Market Snapshot 2019 . It was clear that we were in the final phase of the growth cycle, which was already being noticed in other more mature international markets. In any case, Portugal, and Lisbon benefited greatly from a national and international situation that favoured real estate exceptionally (and which we believe will continue to benefit in the long term).
Recommendations for anyone considering selling
- Pricing: For those who sell, in this phase of uncertainty, it is especially important to place the asking price at the market price. Putting houses above the market price to test the market is a huge mistake, and this will be reflected in the final price. It is the same situation as those who buy an iPhone. Why buy in September when you know that from November the sales will come (black friday , cyber monday , various Christmas campaigns, etc … )?
- Security: In addition, at the current context, it is very important to ensure that all security procedures are followed, whether in home visits or in contractual terms (dematerialized, digital contracts). Buyers have natural reserves and care for their physical health and want to realize that they can do everything safely.
- Marketing and commercial follow-up: Placing an ad on real estate portals and waiting for the house to sell will not work. It will be necessary to use multiple marketing channels , and to do an intensive follow- up of potential interested parties, to show them that this time is as good as any other time to buy a house to live in, and it can be advantageous for those who want to invest. On the other hand, for those who sell, even if they sell below initial expectations, if you are thinking of changing houses you will benefit from a more advantageous purchase as well. What matters is the final balance. Don’t forget that.
- Market information: Finally, and more than ever, decide on the basis of data. We are one of the companies that most invests in buying market statistics, besides collecting our own data, because only then will we be able to provide an excellent service to our clients. Decide price, offers, negotiation strategies. Alternative and creative solutions (always within the law), such as house swap.
We hope this article has been helpful to you. If you want to discuss any topic, call us on +351 960 236 626 or e-mail: [email protected] .