2017 was a great year and this year will certainly be better. The commercial property investment market is very active and we should see a new record in 2018. In addition to the growing national investment, new players are expected to enter and there will be demand for alternative products.
The prospects could not be better for investment in commercial property. In 2018, a new record has been forecasted, and investment should reach 2,600 million Euros. This year we predict new players will enter the national market and there is likely to be demand for alternative products, such as student accommodation, senior housing / retirement living and healthcare real estate. Furthermore, property development is going to increasing in scale.
These forecasts are based on the fulfilment of a number of high value deals currently under negotiation, among them large scale shopping centres — some of which were sold at the beginning of 2018 — and office and residential portfolios. However, figure could be even higher if there is a Merger or Acquisition, as occurred in 2017.
Last year the commercial property investment market had already beaten the record set in 2015 by totalling 2,200 million Euros. This result stemmed partly from the acquisition of the Logicor and Empark companies by institutional funds, and which represented 20% of total volume. According to the CBRE Portugal study – The Property Perspective, in 2017 national investment rose to a 24% share — more than double the 2016 figure — and the European share (excluding Portugal) was 37% of total investment, and a larger number of new international players entered the market. In fact this trend should continue into 2018, since the limited supply in the more core markets has led investors to more peripheral markets such as ours.
As for the sectors, besides the forecast for heavy investment in shopping centres and offices, this year, as was the case last year, we can expect greater demand for existing hotel operations and land for development. In the logistics field, we should see a decrease in investment compared to last year, this is mainly due to the shortage of available products.
On the other hand, the scarcity of typical income generating products and the lower return on traditional real estate products are leading to search for alternative products, such as investment in student housing, senior housing/retirement living and healthcare real estate.
This year should continue to witness the purchase of properties to be refurbished by foreign institutional investors and their entrance into projects geared towards offices and residential housing. On the other hand, investors are expected to begin to opt for income generating residential products.
Good prospects for bank finance
In a global market inundated by capital liquidity, there is a high level of competition within the banking sector to finance real estate deals and the pressure on spreads will tend to increase. In 2017, the major real estate financing operations undertaken in Portugal were led by foreign banks, but in 2018 CBRE foresees an increase in transactions involving national banks, given that solvency problems are beginning to be resolved. However, we will continue to witness national banks selling non-performing loan (NPL) portfolios and properties that are on their balance sheets (REO’s).