Despite the pandemic, funds are investing millions in the long-distance rental market and in leisure hotels.
The last three years have always been a record-breaking achievement and were it not for the pandemic, 2020 would mark a new milestone in raising capital for investment in the commercial real estate market in Portugal, a sector that brings together the office, retail and hotel segments, among others.
But with about three months to go, will the balance sheet be totally disastrous or, on the contrary, will it show some resilience despite the unique situation in which we live? The subject will be discussed at the 1st Conference on Real Estate Development (COPIP) that took place this week.
On the positive side and against all expectations, the hotel and street retail sector remains the focus of investors. Not surprisingly, the star assets of the previous period, the shopping centres, are now put on hold in the purchase decisions of the large funds that accompany the changes in the pattern of consumption caused by the pandemic and which are still very much linked to e-commerce. "In the hotel sector, which in the initial phase of the pandemic was very affected in attracting investment and is still in terms of operation, there is already the perception among investors that the effect of the pandemic will be transitory. Not so much in the 'corporate' segment (hotels that base their activity on business trips), but interest in the leisure segment is beginning to show", points out Nuno Nunes.
The director of CBRE's investment department also assured that "good surprises will emerge by the end of this year and in the first half of 2021," involving hotel transactions worth millions. "We have a record of at least 600 million euros in operations that are currently being negotiated in the hotel sector," he said.
"Also the street retail sector, which is very much linked to tourism performance and which has slowed down significantly during the first half of the year, is already showing signs that it will see relevant transactions by the end of the year", For the time being, the shopping centre segment continues to be negatively affected by the pandemic, and is being viewed with caution by real estate investment players.
Another major novelty that is beginning to emerge in the income real estate market is the interest of international investors (who account for around 90% of the total investment that is made in Portugal) in property development with a mixed sales and rental component. "The residential sector has been unscathed in this crisis. In most European markets we continue to see similar investment volumes and in some countries even higher than in the pre-Covid period. Suffice it to say that in the last decade the volume of investment has multiplied tenfold - from a base of 5.9 billion to 60 billion in 2019," he said, noting that demand pressure on the rental market is finally starting to stimulate supply. "I can say that we are currently working with several developers who have decided not to allocate all their projects to the 'build to sell' option but also to put a share for leasing. All the conditions are met for this market to flourish in Portugal".
The PRS (Private Rental Sector) model has long been implemented in countries such as the United States, Germany or the United Kingdom and has attracted millions of euros of investors such as pension funds and insurance companies that invest and manage portfolios of buildings allocated for rental. In the UK alone, for example, it is estimated that this residential income market will move 75 billion euros by 2025.
Also with a lot of potential for growth, thanks to the boost given to e-commerce based on new needs imposed by the pandemic is the logistics and warehousing sector. But, he said, investors' interest is not matched by supply: "There is a paradoxical situation in this sector: despite high investor demand, there is little product to buy. There are relevant players with important shares in this market but they are clearly not willing to sell".
Despite the pandemic "we are going to return to one of the best years of real estate investment ever, which demonstrates two things - that there is abundant liquidity in the international markets and that the perception of risk for Portugal among investors is very different from that which existed in the 2008/2009 crisis".
In this first edition of COPIP, the idea transversal to all the panels of the event (which had several speakers), was the essential role of real estate in the process of resuming activity. Economist Augusto Mateus stressed that "real estate must be at the heart of a real economic recovery plan after this crisis," and Millennium bcp CEO Miguel Maya reinforced, saying that "real estate can clearly be one of the winning sectors in this crisis.
The high resilience that the sector has shown to the pandemic shock has been pointed out as one of the main reasons that place real estate at the forefront of the country's economic recovery. "The residential sector is the main reflection of this resistance, with prices remaining stable and demand remaining active," the host of the event, Hugo Santos Ferreira, Executive Vice-president of APPII, also noted, reinforcing that it is "essential to creating conditions to maintain the investment cycle, involving the private sector.
To keep the investment cycle active and boost economic recovery, the promoters once again called for some measures, in particular the elimination of slow licensing procedures and the reduction of VAT in construction to 6%.
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