Investment
Porto, the new scenario

Porto must increasingly open up to new uses and to diversify the city.

Market balance analysis has been one of the fundamental aspects of the work developed by Confidencial Imobiliário.

Regardless of the critical judgment that has been made regarding the price growth cycle that has been taking place particularly since 2015, for Ci it is essential to provide market players with the best possible information so that they can understand whether such trends are cyclical or structural, grounded or spurious and, as such, whether they are facing a sustainable cycle of appreciation or a precarious process that would eventually be reversed, generating losses with unpredictable consequences.

In this line of reasoning, this edition highlights the rise in residential rents by 3.9% in the last quarter of 2018, thus reducing what appeared to be a tendency to widen the gap between price and rent growth.

Again, without wishing to derive towards a critical sense of the goodness or otherwise of rising incomes, it is unavoidable that, in the first place, this behaviour underlies the market's greater attractiveness from the standpoint of its ability to generate income. Regardless of agreeing that legislative pressure on supply contributes to its reduction and consequent pressure on prices, I am quicker to conclude that the 34% increase in rents since 2014 is essentially due to the potential that cities have been experiencing.

To this extent, there are reasons to interpret asset valuation as a result of a benign effect associated with the growth of the “city economy”.

Nevertheless, it is important to draw attention to the gap between price and rent indexes resulting from the higher growth of the former. Looking at the past almost 10 years worth of data, these indexes have never been separated by 14 percentage points, showing that while the first appreciation resulted from the higher yield generation, the second results from what is called yield compression.

This is a new circle in almost every dimension. Looking at the more than 30% appreciation in Porto, doubling the Lisbon rate in 2018, or observing transactions on the threshold of 6,000 € / sqm in the historic centre of that city can only imply a reflection on the route travelled and on the mechanisms of management and promotion of integrative balances, for the benefit of all sectors that make up the city.

One result of the analysis of this edition, in line with previous analyses, is the confirmation of a tendency of generalization of market appreciation to the whole city. This in itself is obviously positive, but there is still a high concentration of real estate development in studios and one-bedroom apartments, accounting for two thirds of the nearly 6,000 homes launched in the last two years. This also signals a mono-functional city. Lisbon is now 71% above pre-crisis price levels. Porto is only 15% above this reference. But the truth is that real estate development in Lisbon is more diversified in typologies (although it must be recognized that it is still little orientated towards domestic demand…).

Aware of this, the Porto City Council has been supporting Confidencial Imobiliário in a new project that will soon produce the first results and consists of a local housing market monitoring system, ascertaining the daily rates and occupancy rates for each area of ​​the city. This information will be of high value for the agents' expectations to base their investments.

As expected, the tourist vocation of Porto will not be a trait across its entire territory, which implies that in most of it other alternatives to real estate allocation may prove more favourable, diversifying the uses and recipients of real estate and balancing the city.

Contact us for more information! 

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