Investment Market Overview
High global liquidity, together with a wealthy economic growth and the strong fundamentals observed in the Portuguese real estate markets, have shifted property investment to a new level after the financial and economic crisis, more than duplicating the previous peak volumes.
The origin of investment has changed significantly from the previous cycle of the market, with a considerable weight of foreign capital versus domestic inflow. While in 2007 more than a half of the acquisition volume was driven by Portuguese investors, in the 2015-2019 period only 13% of capital inflow was domestic.
The strong investment activity observed since 2015 has particularly targeted the office and shopping centre sectors. However, investment in hotel assets gained a relevant weight in 2018 and 2019.
Simultaneously, greater risk acceptance has attracted the interest from various investors to other operational assets, such as student housing and multifamily rental housing. Investment in student housing started around three years ago, with the acquisition of land sites for development, as the supply of purpose build accommodation was still very residual in Portugal. In 2019 two large transactions occurred, comprising a mix of operating assets and forward purchase developments. Likewise, the multifamily sector is currently very incipient in Portugal, but we expect to see a couple of forward purchase deals over the next months.
In the first half of 2020, a total of 1,700 million euros were traded on the income property market, which was reflected in the highest historic value in the first semester. However, the impact of the Covid-19 pandemic in the months of April to June was evident, recording a residual volume of transactions. Investment activity is expected to revamp in the second half of the year. Large size portfolios are under marketing, which lead us to project a turnover investment, for the full year, in excess of 2,700 million. The majority of assets are offices.
Yields have been compressing since 2013 in all sectors, achieving historic record lows. The Covid-19 pandemic drove a general 25bp yield upsurge in Q1 2020 based on uncertainty. However, we expect yields to remain stable or even resume the compression trend prior to Covid-19, with exception to shopping centre and hotels, asset classes that were more impacted by the pandemic.