Following years of stalled construction, the largest speculative office project in years has just been launched in Lisbon’s renowned Parque das Nações business district.
Dubbed Exeo, the new office campus will provide nearly 70,000 m2 of modern space across three buildings, and is expected to cost a total of €150 mln. ‘This area has almost no vacancies at the moment,’ Aniceto Viegas, general manager of local developer Avenue which is behind the project, told PropertyEU.
The firm, owned by funds of asset manager Aermont, previously known as Perella Weinberg Real Estate, is currently believed to be in discussions with a big company to lease one of the three buildings.
Exeo is one of a number of new speculative projects popping up across the Portuguese capital as a result of strong trading dynamics and a lack of modern supply in the market.
Another spec project totalling 22,500 m2 is currently being sold ahead of completion after being largely pre-let to law firm PLMJ and consulting group KPMG. The Fontes Pereira de Melo office scheme in central Lisbon is currently being marketed by local private equity firm and owner ECS Capital through CBRE with an asking price of over €100 mln, according to sources.
Also in Alcantara, a port neighbourhood to the south-west of Lisbon, the property development arm of French banking giant BNP has just inked a deal to co-own and speculatively develop 18,000 m2 of offices in a joint venture with Grupo Sil. Upon final completion, the project will encompass over 70,000 m2 of space. ‘We have identified excellent prospects in Portugal,’ says Thierry Laroue-Pont, chairman of the board of directors of BNP Paribas Real Estate, commenting on the new project.
Strong market fundamentals
Indeed, Portugal’s market fundamentals for both developers and investors look good. A lack of supply – which is expected to prevail until 2020 – has already started to put pressure on prime rents, which increased 2.5% in Lisbon and 11% in Porto in the first half of the year, according to research from CBRE. The broker expects further rental increases over the rest of 2018, which are forecast to result in a yield compression of another 25 basis points before year-end.
‘Market fundamentals are quite healthy,’ said Francisco Horta e Costa, head of CBRE’s Portuguese office. ‘There is strong occupier demand for offices in Lisbon but also in Porto, which didn’t really exist as an office market up until three years ago. We are dealing with a lot of companies requiring substantial extensions and there is further pressure on rents to go up. Of course this brings investors looking to take advantage of the forecast rental upside,’ he added.
Investment in commercial real estate has been at its highest level since the start of the year, with volumes driven by Blackstone’s sale of the Rio Tejo portfolio to Spanish REIT Merlin Properties along with other investors for around €850 mln, in the largest-ever portfolio transaction in the country. In early July, private equity firm Kildare Partners also inked the acquisition of the Lagoas Park office campus from construction group Teixeira Duarte for €375 mln while US public equity investor Apollo Global Management is about to complete shortly the purchase of a residential-led portfolio of 277 properties from Portuguese insurance company Fidelidade for €425 mln.
Brokers estimate that commercial real estate investment will exceed €3 bn this year, one third more than 2017, which was already a record-breaking period. The figure does not include investment in refurbishments and redevelopments in Lisbon and elsewhere, which market experts put at around €500 mln so far this year. Most properties are being converted to premium apartments, which have recently reached prices of over €10,000 per m2 as the residential market continues to be fuelled by special incentives such as the golden visa scheme and the programme for non-residents. Housing prices are expected to soar by 9.5% this year, the sharpest increase in Europe, according to a research report recently published by US financial rating agency S&P.
Joint ventures with developers
‘Clearly, investment demand is not meeting supply,’ Horta e Costa noted. As a result of the lack of available product, investors are starting to look at potential joint ventures with developers, he added. ‘In order to secure assets, investors are now willing to move into new, more alternative property segments including student housing or the hospitality sector.’ US sale-and-leaseback specialist WP Carey, for instance, recently teamed up with Spanish group Temprano Capital Partners to invest in a student housing residence in the capital – the first in the country according to its owners. Another four such residences are planned in Lisbon and Porto in the near future.
On the southern coast of Lisbon, at the foot of the Troia peninsula, investor demand is also said to be strong for a number of hospitality-led mixed-use projects in emerging areas seen as potential alternatives to the Algarve. These include Comporta, where the now-bankrupt Espirito Santo family previously owned a massive development estate, now in the hands of administrators which are organising a sale. Interested parties include Vanguard Properties, owned by French billionaire Claude Berda and his business partner José Cardoso Botelho. The firm has already manifested interest in the project after having spent some €500 mln on development sites across the capital city.
Further south, another major development area expected to come for sale in the near future is Pinheirinho, which was taken over by lender, Lone Star-owned Novo Banco in 2017 from developer Pelicano Investimento Imobiliário. Located on the spectacular Alentejo coast, the €250 mln project was due to include two luxury hotels, three tourist villages, four aparthotels with 260 apartments and townhouses, 204 villas and a 90 hectare golf course with 27 holes. First announced in 2007 as a potential national interest project, only the golf course was developed before its owner filed for insolvency in 2015.