- In 2023, the volume of investment transactions in income-generating real estate is estimated to have reached €1.73 billion, representing a significant year-on-year decline of 42%, particularly pronounced in the second half of the year.
- There was increased investor interest in the hospitality and retail sectors, each accounting for around one-third of the total investment volume.
- In terms of occupancy, the office sector experienced varying declines in absorption volumes in the country’s two main cities, with a sharp 66% drop in Greater Lisbon and only a 6% decrease in Greater Porto.
- In the retail sector, the number of new store openings was in line with the previous year, with Lisbon and Porto both recording double-digit year-on-year growth.
- The industrial & logistics market stabilized in terms of occupancy activity, with a 7% year-on-year increase in the first three quarters of 2023 offsetting the expected decline in the final quarter.
- The hospitality sector recorded the highest growth, with all indicators rising across the board, even surpassing 2019 levels.
Cushman & Wakefield (C&W) presents a summary of the national real estate market activity in 2023 and its outlook for 2024.
According to Eric van Leuven, Managing Director of the consultancy in Portugal, “2023 was a challenging year, marked by rising interest rates aimed at controlling inflation and increasing financing costs, which had a direct impact on the global real estate market. In Portugal, there was a slowdown in commercial real estate investment activity, and in the occupational market, the office sector in Greater Lisbon recorded the second-lowest absorption level of the past decade. Nevertheless, other sectors showed greater resilience, maintaining a moderate recovery trend, such as retail and industrial & logistics. The hospitality sector performed the best, even surpassing pre-pandemic 2019 levels.”
Commercial Real Estate Investment Market
Commercial real estate investment activity slowed throughout 2023, with year-end forecasts currently standing at €1.73 billion, representing a significant 42% year-on-year decline, although still in line with other European markets. Due to reduced availability of foreign capital, domestic investors increased their market share to 31% of the total investment volume.
Capital allocation by sector showed the greatest investor interest in hospitality and retail, accounting for 42% and 35% of the total investment volume, respectively. In hospitality, the total of €730 million was notably influenced by Arrow’s acquisition of the Dom Pedro portfolio from Saviotti for €250 million. In retail, of the €600 million invested, the two largest transactions were LCN Capital Partners’ acquisition of the Amália project (a portfolio of 50 Pingo Doce and Continente supermarkets) from TREI for €140–150 million, and First Retail Partners’ purchase (a new fund by Partners Group managed by Mitiska REIM) of a portfolio of five retail parks for around €100 million.
The office sector, in turn, attracted only 9% of the total investment, amounting to €160 million, with BNP Paribas REIM’s acquisition of the Pier III building from Períptero for €30–35 million standing out.
Next were so-called alternative assets, accounting for 9% of total investment, including Live Nation’s acquisition of Ritmos & Blues, which includes the Altice Arena events venue, for approximately €50 million. Finally, the industrial and logistics market represented only 4% of the investment volume, led by Corum Asset Management’s acquisition of the Logifam building in Vila Nova de Famalicão from Grupo Vila Nova for €26–28 million.
In the current context, yields reflected investors’ demand for higher returns, with increases across all major commercial real estate sectors compared to 2022, ranging from 25 to 75 basis points. By the end of 2023, prime yields had adjusted upwards to 5.00% for offices, 4.75% for high street retail, 6.50% for shopping centers, and 5.75% for logistics.
Regarding development and urban regeneration activity, it is estimated that 2023 saw a 54% decrease compared to the previous year, with around €390 million allocated to such operations. Among the largest transactions were Bondstone’s purchase of Quinta do Morgadinho (Loulé) from Interfundos for over €50 million, and Grupo M Caetano’s acquisition of a plot of land on Rua do (Porto) from EDP for an estimated €45 million.
Occupational Markets
Offices
The year 2023 was marked by a 66% year-on-year drop in office space take-up in Greater Lisbon between January and November, with 87,800 m² transacted — the second-lowest figure of the past decade. This decline was influenced by the record high reached in the previous year, as well as a slowdown (or postponement) in demand due to the current economic climate and the impact of hybrid work on office space usage.
Key transactions included, in Parque das Nações (Zone 5), Emma – The Sleep Company leasing 4,600 m² in the Lumnia building at Exeo Office Campus, and Intelcia leasing 3,860 m² in the Espace building. In the New Office Zones (Zone 3), Hospital da Luz occupied 4,130 m² in Tower H of Torres de Lisboa. These two zones each accounted for around a quarter of total demand.
The vacancy rate rose again to 7.6%, and 36,000 m² of new space was completed, of which only 20% remains available for lease. Future supply remains high, with 269,000 m² of office space under construction, 45% of which is already pre-let.
In contrast, the Greater Porto market showed greater resilience, with a slight 6% year-on-year drop in take-up by November, totaling 49,500 m². The largest deal was the full occupation of 7,820 m² at Boavista Office Center (BOC) by national flex office operator LACS, making the Boavista CBD (Zone 1) the most active area, accounting for one-third of total take-up. This was followed by two pre-leases by confidential entities: 5,650 m² at ICON Offices and 4,300 m² at Lionesa Business Hub.
In this region, the vacancy rate rose to 8.5%, with 37,300 m² completed, 42% of which remains unoccupied. As for future supply, 90,200 m² is under construction, with 30% already pre-let.
Regarding market rents, limited availability of high-quality buildings led to a further increase in prime rents: in Greater Lisbon’s Prime CBD (Zone 1), rents rose to €27/m²/month, and in Greater Porto’s Boavista CBD (Zone 1), to €19/m²/month.
Retail
In 2023, the retail sector continued its recovery trend, amid a gradual resumption of retailers’ expansion plans.
In terms of retail developments, only Salinas Park (Vila Franca de Xira) with 12,000 m² of GLA was completed in 2023. However, by 2026, an additional 81,500 m² of GLA is expected, 65% of which will be in retail park format, along with the expansion of Centro Colombo (Lisbon) and the opening of City Center Covilhã.
According to preliminary data aggregated by Cushman & Wakefield, 580 new store openings were recorded in 2023, in line with the previous year. Lisbon and Porto saw year-on-year growth of 20% and 10%, respectively. High street retail remained dominant, accounting for 64% of new openings, followed by shopping centers with 19%. The food & beverage sector continued to lead with 44% of new leases, followed by the “other” category (including furniture, home décor, and DIY) with 18%.
In terms of market rents, limited supply in key high street areas drove up prices: in Chiado (Lisbon), rents increased by €2.5/m²/month to €125/m²/month, and in Baixa (Porto), to €77.5/m²/month. In shopping centers, prime rents rose by €5/m²/month to €107.5/m²/month, while retail parks saw a slight increase to €12.25/m²/month.
Industrial & Logistics
In 2023, the industrial & logistics market stabilized in terms of occupancy, with a 7% year-on-year increase — 358,500 m² transacted between January and September — offsetting the expected year-on-year decline in the last quarter (which in 2022 had the second-highest volume in the past eight years). Major deals included future logistics units for three food sector companies: Lidl (54,000 m² in Loures), Mercadona (47,000 m² in the second phase of the Almeirim project), and Aldi (41,400 m² in Santo Tirso).
Lisbon and Porto remained dominant in demand, accounting for 47% and 31% of take-up, respectively. There was also a balanced distribution between lease/sale transactions and build-to-suit projects.
The vacancy rate in Greater Lisbon’s logistics market stood at 4%, reflecting a shortage of quality supply, which continues to drive new developments. In 2023, 97,600 m² were completed — all in Greater Lisbon. Additionally, 722,100 m² are currently under construction nationwide, 75% of which is already pre-let, mainly concentrated in Greater Lisbon (306,600 m²) and Greater Porto (364,900 m²).
Given this context, there was a general increase in prime market rents, except in Zone 1 of Greater Lisbon (Alverca - Azambuja) and Greater Porto (Maia - Via Norte), which remained stable at €5.00/m²/month.
Hospitality
The year 2023 confirmed the recovery of tourism activity in Portugal compared to the previous year, with all indicators showing growth — even surpassing 2019 levels. Between January and November, the number of guests and overnight stays increased by 13% and 10%, respectively. In terms of hotel operating indicators, total revenues were 20% higher year-on-year, and RevPAR (Revenue per Available Room) grew by 18% to €77.3.
In 2023, over 50 new hotel units were inaugurated, totaling 3,300 rooms, more than half of which were classified as 4-star. Among the largest openings were the Moov Lisboa Oriente (2 stars) with 180 rooms, the Renaissance Porto Lapa Hotel (4 stars) with 160 rooms, and the Masa Hotel Campo Grande (4 stars) with 150 rooms.
As for future supply, more than 100 new hotel projects are currently in the planning and/or construction phase, totaling 10,200 rooms, with openings expected over the next three years. This future supply remains largely concentrated in 4- and 5-star hotels (30% and 38%, respectively) and in the Lisbon and Porto metropolitan areas.
Outlook for 2024
Regarding forecasts for 2024, it is expected that central bank benchmark interest rates peaked in 2023 and will begin to decline during the second half of 2024. In this context, Eric van Leuven comments:
“Expectations suggest that the impact on the national commercial real estate market will result in varied behaviors throughout the year, with the first half still reflecting contraction in some indicators—particularly in the sectors most affected in 2023—followed by a gradual and widespread recovery in the second half. As such, although market benchmark yields may still see some upward correction early in the year, by the end of 2024 we should see year-on-year stability, possibly even a reduction in yields and a consequent increase in value among the more resilient asset classes. In terms of rental values, the scarcity of quality supply is expected to continue justifying occasional increases in headline rents for the best assets.”
In terms of commercial real estate investment, current estimates support this trend, with a projected investment volume of around €1.8 billion from transactions currently at various stages of negotiation and expected to close in 2024—representing a year-on-year growth of over 10%. By asset class, offices are expected to recover, accounting for 46% of total volume, followed by hospitality with 30%. An additional €1 billion in currently suspended transactions (with potential to close by year-end), along with typical off-market deals, could further boost this figure.
In the occupational market, the office sector will likely continue to be shaped by companies adapting to hybrid work models. However, we expect major occupiers to begin solidifying their space requirements—both in quantity and quality—leading to greater leasing activity, especially for modern assets in prime locations.
In retail, retailers will continue investing in delivering a differentiated in-store experience to build customer loyalty. We anticipate strong performance across all sub-sectors: high street retail, shopping centers, and out-of-town retail (retail parks, standalones, supermarkets, and factory outlets).
In industrial & logistics, occupiers’ focus on operational cost optimization should continue to drive demand for quality space, encouraging new developments, including the redevelopment of obsolete facilities. The current stock is considerably outdated, and both occupiers and investors are primarily seeking modern, sustainable properties. Niche sectors such as self-storage and data centers are expected to continue growing.
In hospitality, the sector is expected to continue expanding in 2024, supported by Portugal’s competitiveness as a tourist destination, particularly among international travelers.
In the broader living sector, different realities are emerging: the residential rental market continues to struggle to take off—mainly due to high taxation and regulatory uncertainty in recent years—while other segments such as student housing and senior living are expected to gain importance.
There is also growing attention on alternative assets (such as hospitals and clinics, schools and universities, and life sciences properties), which are in high demand among investors but still have very limited supply in Portugal.
Finally, across all sectors, there is a stronger focus on quality and especially sustainability. Tenants and investors are increasingly willing to pay a green premium for highly sustainable assets, while less sustainable properties are being penalized with a brown discount.
At the same time, many institutional landlords with strict ESG requirements for their portfolios are facing a difficult dilemma with more obsolete buildings: whether to invest heavily in decarbonization (without guarantees that the added value will justify the cost) or to repurpose these properties for uses better aligned with today’s real estate needs.
