Portugal’s cities are going through a modern day renaissance as strong economic growth fuels new retail developments, companies vie for space in its growing office market and investors target older buildings for refurbishment projects.
Lisbon, the capital, is making a name for itself as international city, especially among multinationals and higher-end home buyers, while its second city, Porto, is seeing its retail scene and office market flourish.
“The cities of Lisbon and Porto are experiencing a true upsurge,” says Pedro Lancastre, Managing Director at JLL Portugal. “Many buildings are being refurbished, public areas are undergoing major transformations and new shops, cafes and restaurants are opening every day.”
The new hotspots of Lisbon and Porto
Growing confidence levels among Portuguese consumers, coupled with increasing tourist numbers – overall foreign visitor numbers to Portugal rose by nearly 12 percent to 12.7 million last year, according to preliminary data from the National Statistics Institute – are creating a buoyant retail scene.
“The focus is on high street retail, which continues to strengthen in Lisbon and Porto and is becoming a real alternative to its shopping centers,” says Patricia Araújo, Head of Retail at JLL. “In particular, the restaurant sector is seeing a high rate of new openings and innovation. In Lisbon, Cais do Sodré is currently the city’s hotspot for restaurants and nightlife while in Porto, the Flores/Mouzinho axis is now the area attracting the most interest, where the high footfall of Rua de Santa Catarina is creating high demand among mass-market retailers.”
The historical center of Porto is also increasingly sought after among companies seeking office space in all market sectors. In Lisbon, meanwhile, the Riverside area is seeing buildings and warehouses converted into office space to meet rising demand, especially from legal and financial services.
Even the tech giants are keen to secure space. Google recently announced it is opening a tech support center near Lisbon and Amazon is reportedly considering opening a retail center in Porto. They’re joined by growing numbers of start-ups seeking space in Lisbon’s flourishing co-working scene with incubators such as the Beato Creative Hub on the east side of the city.
Yet supply is failing to keep up with demand. “The great challenge for 2018 will be to find spaces that meet companies’ current requirements, being predominantly large spaces with large areas per floor, modern designs, good quality technological infrastructures and locations well served by public transports,” says Mariana Rosa, Head of Office Agency & Corporate Solutions, at JLL Portugal. “The lack of supply of new and quality buildings is currently a critical issue, beginning to restrain business activity.”
Large-scale residential developments
The appetite for Portugal’s real estate also extends to its residential sector, which has been boosted by easier access to bank loans for domestic buyers and the government programs to attract foreign investment such as the Non-Habitual Resident permit and the Golden Visa program, which offers fast-tracked residency permits for foreigners making a property investment of at least €500,000.
According to Statistics Portugal, the number of houses sold in Lisbon and Porto grew by around 20 percent during the first nine months of 2017 with interest increasingly also outside of the central areas of the cities. For domestic buyers, the attraction lies in lower prices while international buyers are drawn by the alternative lifestyle on offer. Lisbon’s Beato zone, for example, is the new focus of several residential developers.
Yet the city’s historic center continues to appeal to investors looking for opportunities in short term rental to the growing numbers of tourists, while prime zones, such as Avenida da Liberdade, Chiado, Príncipe Real and Estrela/Lapa, are consolidating their position in the high-end segment.
In many cases, older buildings long in need of refurbishment are finally getting a new lease of life. “Current market dynamics mean that areas of the cities where our built heritage needed development are now seeing the light of day,” says Fernando Vasco Costa, Head of Development Solutions at JLL. “This momentum will therefore help to consolidate our cities, enhancing their efficiency and improving quality of life for both residents and tourists.”
New policies are also playing a role: Lisbon’s historical center district, whose buildings were once falling into disrepair, is now home to modern apartments thanks to a change in strict rental laws. Meanwhile, several large new build projects are set to be completed in the coming years, targeting both the residential and tourism markets.
Investors play close attention
The transformation of Lisbon and Porto means both cities are firmly on the radar of investors. In 2017, almost €2 billion of commercial real estate transactions took place, making it a record year for the sector. The 2.6 percent rise in Portugal’s GDP last year – the highest rate of growth in at least a decade – has played a key role in boosting investor confidence.
JLL forecasts that Portugal could achieve a new investment record of $2.5 billion in 2018, with foreign investors, who were behind almost 80 percent of transactions last year, attracted by low interest rates, the wide variety of investment opportunities, and an increase in both rents and tourism.
Stronger investment levels in turn are likely to drive further developments in the residential, retail and office markets to potentially give homebuyers, companies and tourists more reason to consider Portugal as a top European destination, Lancastre believes.
“International interest in Portugal will continue to grow, whether as a destination to invest, live, work, study or visit,” he concludes.