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MIPIM, Cannes & Lisbon

Portuguese real estate market starts gradual recovery in 2010

After 2009 blighted by a drop in performance in all segments


MIPIM, Cannes & Lisbon, 18th March 2010 — Jones Lang LaSalle today announced its Portuguese Property Market 2009 – Outlook for 2010 research report, which analyses the Portuguese real estate market in 2009 and gives an outlook for 2010. The report reveals that the Portuguese market is in position to start a recovery, albeit a modest one, in the different segments, continuing the upturn in confidence levels and activity that was seen in the second half of last year.

Manuel Puig, Managing Director of Jones Lang LaSalle Portugal, explained:  “As we moved into 2009, expectations could not have been worse for the property market, with the economy in recession and the investment and occupation markets shrinking. However, by the end of 2009 the extremely pessimistic forecasts did not materialise and the market adapted itself to the new circumstances, which in turn is leading to a return of confidence.”
Manuel added: “The real estate market is not set for a complete recovery in 2010, but the year has started with increasing positive sentiment and all the signs suggest that some sectors will put in a better performance this year compared to last year.”
 
Jones Lang LaSalle’s report outlines several positive signs across the commercial property sectors in Portugal that seem to point towards a slow recovery of the market in 2010. In the investment market, demand is expected to continue at the same pace as in the last six months of 2009, driven forward by improved access to finance, the return of foreign investors and the bigger demand for subscriptions of national funds. In the retail sector, Jones Lang estimates that retailers will seek to resume their expansion plans, albeit modestly.  The forecast for the offices sector is less optimistic as both take-up levels and rents are expected to remain at the 2009 levels.  According to Jones Lang LaSalle, 2009 was one of the worst ever years on record for Portugal’s real estate market. This was chiefly due to the economic crisis that was strongly felt both at national and international levels, resulting in declining performances in practically all segments.
 
In the office market the year 2009 marked a turning point, with a drop of around 50% in the annual take-up to 115,118 m², spread over 237 transactions. The confidence of companies fell as they showed greater prudence in their decision-making and focused heavily on costs. As such, occupier demand was limited as many companies opted to renegotiate their office space rents and much of the demand was created by downsizing transactions. In general, most of the zones in the Lisbon market suffered reductions in take-up (apart from zones 4 and 7). Zone 5 (Parque das Nações) exemplified this trend, as only 5, 000m² was leased in the whole year. Zones 3 and 6 performed the most strongly and together they accounted for around 47% of the total office take-up.
 
Jones Lang LaSalle’s research also shows that demand levels did not match supply. The surplus in supply led to a vacancy rate of 9.71% (422,447 m²) of Portugal’s total office stock, which totalled 350,540 m² at the end of the year. In 2009 approximately 77, 000 m² of new office space came onto the market, spread over eight buildings. It is forecast that over in the next two years around 157,700 m² will come onto the market.
 
Portugal’s retail markets also witnessed a fall in activity, thought slight, proving the sector has reached maturity, with a decrease of only 4% of Gross Lettable Area (GLA) opened. In 2009, a total of 310, 000 m² of GLA was opened to the public, of which around 84% was shopping centres. Of significant note was the opening of the Dolce Vita Tejo, which has 122, 000m² of GLA and which is currently the biggest shopping centre in Portugal. Market performance which is considered balanced, is a result of greater levels of caution exercised by developers, given that many retailers put their expansion plans on hold, influenced by the depressed economic climate and the lack of consumer confidence. As such, according to Jones Lang LaSalle, only projects with guaranteed chances of success went ahead, and the same attitude is likely to prevail in the coming months regarding the provision of new supply. In 2010, plans are in place to inaugurate around 214,546 m², which is 31% less than in 2009, and around 31% of this supply is located in the Northern region, 27% in Greater Lisbon and 17% in the Setúbal Peninsula. Currently, the retail stock in Portugal totals 3,356,459 m², which gives an average density of 249 m²/1,000 inhabitants.
 
There was a steep fall in investment, and bar far this the real estate sector was the most badly affected by the economic crisis. In 2009, the real estate investment market in Portugal transacted €393million, which was 44% less than in 2008, with 65% of this volume transacting in the second half of the year. The retail sector saw the largest fall in volumes last year compared with previous years where it was the most dynamic sector and proved extremely attractive for foreign investors. In 2009, Portuguese retail investment volumes totalled €58 million; mainly stand alone units and high-street shops. The office investment market was the most active, with volumes of €227million, which was an increase of 6% compared to 2008. Of significant note is the sale of the Torre Oriente (Eastern Tower) to Union Investment for €72million. The logistics and industrial warehouse market also returned a positive performance, growing around 12% in relation to the previous year, with an investment volume in the order of €76million.
 
Pedro Lancastre, head of Capital Markets at Jones Lang LaSalle Portugal, added: “Despite the sale of the Torre Oriente completing in the second half the year, 2009 generally witnessed smaller transactions of volumes between €3- 10 million, mostly in the retail sector in stand-alones. Jones Lang LaSalle advised on most of these transactions. ”
The logistics and industrial warehouse market, like all others, was equally affected by the economic crisis and consequent slowdown in companies’ activity. The take-up of new space stagnated, and the only reason it did not suffer large decreases is because a large proportion of the development in this sector takes place only after pre-leasing agreements have been reached.