Portugal - A land of real estate investment opportunities for those with cash
Now is the time for investors with capital to pick up all kinds of assets at attractive prices with potential to gain in value in the medium and long-term says Jones Lang Lasalle's head of capital markets, Walter Fábrega.
The Portuguese investment market currently offers excellent opportunities to invest in all kinds of assets at different levels of risk according to Jones Lang LaSalle’s head of capital markets, Walter Fábrega.
“We’ve identified opportunistic institutional investors seeking both value added and distressed assets at prices with big discounts, a high level of commercial risk but with enormous potential to increase in value over the medium to long terms if they fit in with their investment return objectives,” says Walter Fábrega. Both the office and high street segments are providing key opportunities for investors right now, particularly those with ‘prime’ characteristics, namely prime locations, recently built quality properties, and those with long, watertight contracts and credible, reliable tenants. “These are what define liquid assets that continue to be sought after in our market,” explains Walter Fábrega who points out that there is product at investment values of between €2 and €50 million.
While debt and debt restructuring is in the forefront now as banks suffer increasing levels of credit default, there will continue to be some refinancing facilities from banks for companies that meet their borrowing obligations, while those that cannot will be forced to sell their assets. “The current market will not leave much room for contracting more debt since the banks’ criteria is much more selective, while the costs in terms of interest are extremely high,” says Walter Fábrega who also points out that there are also many investors who don’t currently have the ready cash. “These conditions mean that the perspectives for investment in 2012 aren’t very favourable. We think that there has been an adjustment in prices which could continue for some time yet, and which will have an influence on investment volumes,” explains Walter Fábrega.
That said, there are investors in the market with the capacity for investment or the ready cash to complete some deals, especially private Portuguese investors with an investment capacity of up to €15 million, private Spanish investors with an investment capacity up to €30 million, as well as some International Investment Funds (Equity Buyers) with the capacity to put down hard cash for products that require an additional spread in order to ensure their profitability. “We also think that the current market conditions are ideal for the creation of partnerships and joint ventures between investors and owners, with opportunities for buying up assets that can be negotiated through paying in tranches. Apart from prime investments, Walter Fábrega believes that the Portuguese market has some other good opportunities to attract investors such as products in the hotel segment with excellent locations in Lisbon city centre, from prestigious operators with know-how and track records. “In this market we’re seeing historically interesting indicators, such as very attractive average occupation rates and investment volumes of between €10 and €50 million,” he adds.
When it comes to the logistics market, Jones Lang LaSalle says that only the best products are in demand, although there are top-quality logistics platforms in good locations and tenants with attractive contracts.
Although the urban rehabilitation market is being pushed in terms of demand, the existing opportunities for investors are directed towards niche markets in the residential short-term rental segment, with a particular emphasis on the diversity and quality of hostels in historic city centres. The market also offers other opportunities which are being presented to opportunistic investors and investors considered value added. The market also holds non-conventional opportunities, as is the case with hospital units which currently have interesting products for some investors.
Investment in the office sector in prime areas will continue to present the best opportunities in the market in cases where the rate of vacancy is less than 10 per cent coupled with the realities of reduced rents which are viewed as an opportunity. The significant reduction in the volume of take-up, which in the last year has stood at around 87,000m ², has proved a difficult feature for the market which will limit the number of investment deals.
“We believe that buildings in the best prime locations that need restoration and modernising will prove a good investment opportunity at an attractive purchasing price,” says Walter Fábrega.
Overall Jones Lang LaSalle believes that Portugal, as a periphery country, has reached the bottom but will recover, although later than some other European markets. “It suffers later, suffers more, and takes longer to recover,” Walter Fábrega points out; adding that after each recession there is always a period of uncertainty for growth potential and new opportunities.
“After the 2011 bailout, it will be a question of time and confidence before we see how the market reacts and how international investors view the risk of real estate and, in the wider sense, Portugal as a market,” explains Walter Fábrega. With Greece the centre of attention, Portugal has remained on the sidelines in terms of headline news in the last few months because it is successfully meeting the programme imposed by the IMF/EU/ECB troika.
“This is leading to considerable structural reforms, many of them aimed at controlling public expenditure, but others which are specifically directed at the real estate sector, in particular ones to shakeup and revitalise city centres. These are reforms which, had they not been insisted upon by Europe, would have been difficult to make. We’re talking about an exceptional situation, one with big risks but great opportunities too,” concludes Walter Fábrega.
All text and photos kindly supplied by BPCC Member: