REAL ESTATE - Portuguese property returned 12% in 2006 – above bonds (0.2%) but significantly below equities (29.9%), according to IPD data released last week.

Retail delivered the strongest performance at 15.9%, driven largely by domestic and international investor interest in regional shopping centres. The sub-sector saw capital growth of almost 9%.

"One of the drivers is that there has been a definite boom in retail property because of interest from both Portuguese and international players," said IPD country manager Luis Pedro Francisco.

Retail constitutes 50% of the index – and has been the top-performing sector since it launched in 2000. Industrial returned 7.7%.

Yet Francisco forecast that more investors would look to secondary cities in the next few years. He also predicted increased interest in "new concepts" such as factory outlets as additional investments.

Francisco expressed overall optimism for Portuguese property for both the short and long term. Describing Portugal as "middle-ranking" among European markets in terms of returns, he forecast continued growth at least in retail – though probably not at 2006 levels.

"Looking at what we’ve seen, it’ll be higher than 10% for sure," he said.

Compared to retail, office – especially in central Lisbon – has suffered under the weight of too-high expectations in recent years.

"Five years ago, investors were expecting crazy rents – impossible levels," said Francisco. "They expected €20 per square metre. What they’re getting is €12.

"A few investors still see occasional opportunities in office, but overall the sector doesn’t offer performance."