Good news for the Portuguese real estate market, which will continue to live good (or even better) times in 2019. Whereas it was outside the top 10 in 2018, Lisbon will stand out this year as the leading destination for real estate investment within Europe, surpassing cities like Berlin, Dublin and Madrid. After the heyday of mature markets, interest is now moving to small but dynamic cities. The Portuguese capital is, in this context, referred to as the "rising star" where it's worth taking the risk of investing in the long term.
Relatively cheap real estate, extraordinary returns and a high quality of life are the great assets that make Lisbon the number one choice for property investors in Europe, according to the most recent edition of the study Emerging Trends in Real Estate by PwC and the Urban Land Institute.
The ten main cities chosen by investors (Lisbon, Berlin, Dublin, Madrid, Frankfurt, Amsterdam, Hamburg, Helsinki, Vienna and Munich) are a "mix of smaller newcomers and larger markets already tried and tested", points out the report, which includes the opinion of 800 senior managers in the industry. The exit of the United Kingdom from the European Union is benefitting this type of cities, which were traditionally further away from investors' sights. London is ranked 29th, with no British city ranking among the 10 favourite destinations of investors - and Brexit is singled out as one of the top instability risks for real estate in 2019.
What makes Lisbon the number one choice in Europe?
At a time when there are many investment risks in Europe, with an emphasis on international political instability - pushing Italian cities away from the eyes of British investors as well - investors now seek to preserve their capital instead of achieving the high returns that they aspired to at other times.
"Demand for safe incomes next year will be paramount in the entire European real estate industry," and investors are "not looking for high returns, but security," said the director of the European Investment Bank (EIB) quoted in the study that the idealista/news had access to.
It is within this outlook that investors' radars are oriented to real estate rather than to other asset classes and, above all, to smaller, dynamic cities such as Lisbon. And while it is classified as a small market, it is offering excellent returns.
The Portuguese economy is "growing at a healthy pace", another factor that, according to PwC, helps "its capital city to now be an international destination for companies, investors and tourists." As one private equity investor points out, quoted in the study, "everyone is talking about Lisbon right now".
In a kind of never-ending circle, the demand by international companies to settle in the Portuguese capital has helped to further promote national fame. "Portugal has become a popular place to set up service centres. It is a combination of labour and real estate that is still relatively inexpensive and has an excellent quality of life," said one specialist who was surveyed, explaining that renters nowadays already have to compete for real estate in a market where the supply is increasingly reduced. And all this is resulting in a diversification of the profile of the investors in Portugal. If, at the previous peak, the Portuguese market was mainly made up of national and German real estate funds that were essentially looking for the same type of product, "there is a rather large diversity of capital: in terms of origin, profile risk and asset class," according to another specialist cited in the paper.
Can the risk of a property bubble jeopardise the future?
Speaking on the boom in the real estate market in Lisbon, respondents are calm about the evolution of the residential rental market, but they show concern about the office sector. "There will be shortages in the supply of offices in the next two to three years," warns a national expert, and speculation is expected to emerge.
As for the retail business, expectations are, on the whole, positive. "Portugal has a low internet penetration, a successful tourism economy and a population that likes to shop," concludes PwC. The future looks bright for investing in real estate in Lisbon!