Retail assets are expected to account for over half of Portugal’s total investment in commercial real estate this year, in a big comeback of what has been a subdued market segment over the past few years.
Shopping centres, retail parks and other retail assets are likely to make up roughly 55% of this year’s commercial real estate volumes, which are expected to total around €2 bn, according to advisor CBRE’s recently appointed head of capital market transactions Igor Borrego.
A number of big-ticket retail transactions have contributed to the stellar performance of retail real estate, including most recently Lighthouse Properties sealing the purchase of Alegro Montijo, a shopping centre located in the Greater Lisbon area, for €178 mln. The asset was acquired at a net initial yield of 7.2%.
Earlier this month, South Africa’s Vukile Property Fund bought a €176.5 mln shopping centre portfolio through its 99.5%-owned Spanish subsidiary, Castellana Properties from a Harbert European Real Estate Fund subsidiary for an initial yield of approximately 9%.
‘The comeback of retail assets is the main story this year,’ said Borrego, who was appointed head of capital markets in Portugal in July. ‘We are seeing the market improving and the gap between buyers’ and vendors’ expectations is narrowing, especially now with interest rates going down. This is leading to more activity, particularly in the retail asset class.’
Offices used to be the biggest segment in Portugal but they have seen a very weak year so far and still need time to recover, added Borrego. ‘The biggest investors in this sector used to be the German funds which are not active at the moment and the American players which are shunning offices because of what happened in the US office market,’ he explained.
The only major office transaction in 2024 was Real IS’ purchase of the 15,000m2 K-Tower Lisbon Business Centre from Krest Real Estate Investments.
Alternatives, on the other hand, are showing high numbers with student accommodation in particular trading strongly, driven by Portugal’s low provision numbers and the potential for growth. Belgian real estate company Xior, for example, acquired a student residence located in Campo Pequeno, Lisbon, from TPG and Round Hill Capital for €58 mln, or about €153,000 per bed. CBRE advised on the deal.
Residential is expected to start picking up over the next few months, with CBRE currently handling the sale of a number of residential developments in Lisbon. So far, the market has been focused on build-to-sell, but the advisor expects to start seeing build-to-rent schemes come up for sale from next year.
‘After the end of the Golden Visa scheme in 2023, the market saw a slowdown in sales combined with high construction costs, and the difficulty to underwrite the level of rent needed for a build-to-rent scheme made it difficult for this sector to take off,’ Borrego pointed out. ‘But we are confident that, if not this year, we will see one or two build-to-rent projects come to the market next year.’
