Lisbon Real Estate June 2021

What is important to know?

  • The new focus is on new construction and modern developments: There are more than 1,000 new construction homes in Lisbon, Oeiras and Cascais, in modern developments, many with lots of amenities adapted to current times (swimming pool, gym, gardens, bicycle parks , chargers for electric vehicles, sustainability concerns, among others);
  • New construction will continue to push the average price up: The cost of construction represents the largest share of costs, and will hardly come down in the near future, given the lack of manpower. Promoters do not have the flexibility to lower prices, otherwise they lose money. Behind the biggest promoters are investment funds, well capitalized. Either there is a drastic change in the macro-economic scenario, or this trend will continue;
  • AtUntil interest rates rise, price drops are not expected: As long as interest rates remain historically low and banks continue to promote loans for housing, prices should maintain the trend of stabilization or slight appreciation. The ECB has already signaled possible increases, but only from 2023 onwards;
  • Oeiras is beginning to assert itself as a solid alternative to Lisbon, in the mid-high segment: Oeiras is the county in the country with the highest per capita income, it has the largest business area in AM Lisbon. Work on the World Trade Center continues to progress at a good pace, and construction on the Cinco District is starting. In these 2 projects alone, they are expected to accommodate around 5,000 employees. This will increase the pressure to increase the supply of quality housing, which is already starting to happen in Miraflores and Oeiras, among others;
  • The Golden Visa through investment in residential real estate ends at the end of this year, in areas with greater density such as Greater Lisbon, Greater Porto and Algarve: That is, whoever is interested, only has 6 months. We are running a cycle of several webinars for foreign investors who want to take advantage of this last opportunity. In recent months we have reached more than 100 investors who are considering investing in Lisbon. We are short of properties for these investors;
  • Sales prices continue to perform better than leases: There are several funds that own residential buildings, have renovated the fractions and are putting them on the market at very competitive prices. This factor adds to the pressure from the Local Accommodation apartments that have transitioned to traditional rentals;
  • There is still a lack of quality rental offers for expatriates who come to work in Portugal, ready to move in: Less than 5% of apartments in Lisbon are offered fully furnished and ready to live. Many owners continue to insist on putting their apartments for rent unfurnished. And this is a mistake, because they take 3x longer to rent and earn 20 to 30% less in rent. In the long run, it clearly pays off;
  • Office work will continue to be the norm, even after the pandemic: At least that’s what market players seem to believe. Contrary to the general perception that remote work will start to gain more and more weight, and companies will reduce the occupation of physical space, for now, the signs are the opposite. Investment in offices continues to increase and demand remains strong. Who will be right?

Market information (*):

  • The volume of transactions on AM Lisboa increased by around 17.7% in the last 3 months ending in May, when compared to the 1st quarter: The average price per m2 increased by 1.7% in the same period;
  • The promoters believe that prices should follow a slight upward trend in the coming months;
  • In 2020, 2.9 billion euros were invested in income assets, of which 69% of this volume was located in the Lisbon region;
  • Best performances in the return (capital+rents) of real estate in Portugal: 1) offices with 6.1%; 2) industrial with 5.7%; 3) residential with 4.4%; 4) retail with -3.5% and 5) hotels with -4.7%:
  • The interest of developers in rental construction has waned: In the last quarter of 2020, 73% of respondents saw these projects as interesting or very interesting, and now it’s just 58%. It is recalled that the price of rents fell by 5.8% in 2020, compared to 2019;
  • Lisbon continues to be the preferred destination for the development of new residential projects, leading with 68% of investment intentions, compared to 26% for the periphery;
  • 76% of developers prefer to bet on new construction, 58% target national buyers and 21% foreign buyers;
  • There continues to be a strong commitment from developers in the office market: There are currently 253,000 m2 in pipeline in Lisbon, of which 126,100 m2 are in Oeiras (leader in the AM Lisbon office supply ranking), including the World Trade Center and Cinco District (both in Carnaxide), and 112,000 m2 in Lisbon, including the Exeo Office Campus in Parque das Nações.

(*) Source: Confidencial Imobiliário, for a Nomera Capital analysis.

Evolution of the Number of properties and the SALE Price/sqm in some municipalities in the Lisbon Area

The volume of transactions has been accelerating considerably, with increases of almost 20% in most municipalities, in the 3 months ending in May when compared to the 1st Quarter of 2021 (accumulated over the last 3 months). Part of the explanation will have to do with the impact of confinement at the beginning of the year.

Prices rose in Almada, Amadora, Cascais and Oeiras, and fell slightly in Lisbon and Odivelas. Quarterly price changes always have to be viewed with relative caution as they cover a very short period.

Evolution of SALE Price/sqm for Parishes of Lisbon

The parishes with the best performances were Santa Clara, Arroios and Penha de França. At the opposite extreme, Misericórdia, Ajuda and Santo António.

These variations should be viewed with relative caution as they cover a very short period.

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