Market Pulse. Highlights. Economy. Portuguese Real Estate Market Quarterly Report Q Indicator (f) 2017 (f) 2018 (f)

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1 Market Pulse Portuguese Real Estate Market Quarterly Report Q Highlights Like last year, investment in commercial real estate in the 1st quarter of 2016 presented a continuous upward trend. In the first three months, 570 million euros were invested, representing a 326% growth compared with the same period in the previous year. Yields in this 1st quarter recorded an overall decrease. Occupancy in the office market remained quite active in the 1st quarter of 2016, with a take-up volume of approximately sq m. After the growth recorded last year, prime rents remained stable. The retail market remained dynamic, both in high street retail and prime shopping centres. The vacancy rate dropped and prime rents increased once again in some of Lisbon s retail zones, as well as in shopping centres. Economy Forecasts by the Bank of Portugal regarding the Portuguese economy s performance over the next years were slightly revised downwards, mainly for the current year According to this body, GDP is expected to grow 1.5%, remaining in line with the previous year. The basis of this decrease is the downward revision of exports, which should only grow 2.2%. The remaining GDP components remain virtually unchanged: Private consumption is expected to rise 1.8%, 1.9% and 1,3% in 2016, 2017 and 2018, respectively. For those same years, inflation is forecasted at 0.5%, 1.4% and 1,6%. Finally, exports should grow 2.2% in 2016, 5.1% in 2017 and 4,8% in Unemployment is due to continue to drop, although in a less pronounced manner than in the last 2 years. According to the preliminary forecasts made by the official institute INE, the Portuguese GDP grew 0,8% in the first quarter of 2016 y- o-y, slightly lower than the previous quarters. External demand had a more negative impact on the GDP, reflecting the slowdown from exports. External influences are having some impact in the Portuguese economy, mostly due to the difficulties Angola and Brazil are facing, due to the decreasing oil prices in On the other hand, in the EU, our neighbour and main trade partner Spain is enjoying a positive economic period, which somewhat mitigates the drop in exports to the Portuguese-speaking countries mentioned before. Regarding the financial accounts, the Portuguese government has committed to lowering the budget deficit to levels that are acceptable to Europe, below 3%. However, several organisations are unsure how this will be achieved, since numerous measures to contain spending were revoked. The current accounts and trade balance are expected to remain positive, although without many gains in the initial phase of this year. Portugal s performance should remain positive, although the political and economic development in both the domestic and external spheres remain to be seen, factors that may influence this performance. Main Economic Indicators Indicator (f) 2017 (f) 2018 (f) GDP 1.5% 1.5% 1.7% 1,6% Private Consumption 2.6% 1.8% 1.9% 1,3% Inflation Rate 0.5% 0.5% 1.4% 1,6% Unemployment Rate 12.4% 12.8% 12.1% n.a. Exports 5.1% 2.2% 5.1% 4,8% 10 Year Bond Yield 2.42% Source: Banco de Portugal & Eurostat 1

2 M Retail Office Market Pulse Q Capital Markets The volume of transactions involving commercial real estate in the 1st quarter of 2016 reached 570 million euros, 326% above the amount recorded in the same period in This is an extremely strong and consistent growth that has lasted for several quarters. The office sector represents approximately half of this investment - 49% - followed by retail with 38%. Concerning the office share, two large transactions greatly influenced this quarter: the purchase of the Campus da Justiça by a French private investor and the purchase of the Torre Galp by a Spanish real estate investment firm. In the retail sector, two important sale & leaseback operations took place involving two Sonae hypermarket portfolios. The operation to purchase the Monumental shopping centre, which contains offices as well, also took place during this quarter. Regarding the type of buyer, during the 1st quarter, private investors and family offices represented the greatest share with 42% of the volume invested, mostly due to the transaction involving the Campus da Justiça. The usual investment funds came next with a 38% share. Finally, real estate investment firms represented 18% of the volume traded. It should be noted that the volume recorded by JLL does not include transactions involving real estate for residential or development purposes, which are in increasing demand in the Lisbon and Porto city centres, not only due to regeneration incentives, but also to widely known programs: Golden Visas, which experienced a new boost in visas issued this quarter; the Non-Habitual Resident Tax Regime and the continuous increase in demand for tourist apartments, driven by the boom in the Portuguese tourism market. Yields in the 1st quarter recorded an overall decrease in almost every zone and format. In the office segment, all zones dropped 25 base points, except for the New Office Zone, which dropped 50 base points. In retail, yields in shopping centres and high street retail remained unchanged, however these are already extremely contracted, while yields in retail parks and industrial & logistics assets dropped 25 b.p. and 50 b.p. respectively. For the rest of the year, we anticipate the market will maintain its current dynamic, with high investment volumes. Yields are expected to stay the same in most zones and sectors, since they are already quite contracted Prime Yields, Q Investment Volume Evolution Building Value (M ) GLA (sq m) Campus da Justiça ,600 Private Sonae Hypermarkets Portfolio Zone/Format Prime Yield (%) Q-o-Q (bp) Q1/16-Q4/15 Y-o-Y (bp) Q1/16-Q1/15 Prime CBD 5, CBD 6, New Office Area 6, Historic & Riverside Zone 6, Parque das Nações 6, Western Corridor 7, Shopping Centres (net) 5, Retail Parks (líquida) 7, High Street Retail - Lisbon 5, Industrial & Logistics 6, Main Transactions, Q Q1 National International 2016 Purchaser 164 n.d. International Fund Monumental 60 22,400 International Fund Torre Galp ,700 International Fund 570 Sonae Hypermarkets Portfolio 40 n.d. International Fund 2

3 Market Pulse Q Office Market In the 1st quarter of 2016, the office market recorded a take-up volume of sq m, which represents a 13% growth compared with the same period in the previous year, and a 15% decrease compared with the last quarter of The market was quite active and in line with the take-up volume registered last year, when the office market maintained a steady growth. In a total of 46 operations, the average area per transaction was 726 sq m, thereby proving the trend of greater sized operations. Indeed, the 1st quarter of 2016 recorded 8 large-scale operations above sq m, once again carried out mostly by companies in the call centre sector and back office services, namely IT companies. EDP s move to the Niña building and Talkdesk moving to Amoreiras, both in the CBD, are examples of this, as well as the expansion of Webhelp s space in the Torre Fernão Magalhães at Parque das Nações. The most active zones during the 1st quarter were the Prime CBD, representing 22% of the area taken up, followed by the CBD and New Office Zone, respectively with a 2 and 19% share. These were the zones where the main large-scale operations took place, namely the Global Media Group changing offices to premises measuring more than sq m in Torres de Lisboa, and Havas moving to premises measuring approximately sq m at Liberdade 252. The vacancy rate maintained its downward trend, standing at 10.8%. The reduced development of speculative buildings in recent years, as well as the market s vigour, are the basis of this decrease. All zones recorded a drop in vacancy, except for the Historic & Riverside Zone, which registered zero take-up, and the Western Corridor, where a new office building was completed. Prime rents remained stable following the slight increases recorded in the second half of 2015, namely in the Prime CBD, Parque das Nações and Western Corridor. Therefore the market is moving towards a better negotiating balance between owners and tenants, since vacancy is becoming increasingly scarce. In the 1st quarter, the 9th office building at Lagoas Park was completed, with a total of sq m for speculation. There are currently approximately sq m of offices under construction, 6 of which are speculative. The new supply should be completed by 2017, approximately 5 of which is located in the Historic & Riverside Zone. There are approximately sq m in the pipeline but still in the project phase, which include the 3rd Colombo Tower and a building located on Avenida da República. Take-up & Vacancy Rate, Q Zone Top Office Deals, Q Building Zone Occupier GLA (sq m) Torres de Lisboa 3 Global Media Group 5,137 Liberdade, Havas 4,572 Entreposto 7 CML 4,491 Atrium Saldanha 1 Hiscox 1,995 Alfrapark 6 Abbvie 1,827 Prime Office Rents, Q Take-up (sq m) Vacancy Rate Prime CBD 7, % CBD 6, % New Office Area 6, % Historic & Riverside Zone % Parque das Nações 1, % Western Corridor 5, % Other Zones 5,201 - Total Lisbon 33, % / LPI / LPI Zona Prime Rent ( /sq m/month) Q-o-Q Q1/16-Q4/15 Y-o-Y Q1/16-Q1/15 Prime CBD % CBD New Office Area Historic & Riverside Zone Parque das Nações % Western Corridor / LPI Summary & Outlook Q Outlook Q2/16 Stock (millions sq m) Completions (sq m) 4,900 - Take-up (thousand sq m) 34 Vacant Area(thousand sq m) 497 Vacancy Rate (%) 10.8% Prime Rent ( /sq m/month) 18.5 / LPI 3

4 Thousand SQM M SQM Market Pulse Q Retail Market The indicator for consumer confidence presented a positive tendency throughout 2015, and the beginning of 2016 was no exception. The indicator for retailer confidence also rose, displaying a positive result since the beginning of Indeed, we are currently witnessing a positive evolution of the retail market, especially in prime assets, both in high street retail and shopping centres. In addition to the evolution of domestic consumption, high street retail, particularly in the historic areas, has also benefitted from the tourism boom. Demand in residential areas has also grown slightly, driven mainly by national convenience operators who want to be close to the population, whose consumption habits include neighbourhood retail again. Chiado is completely occupied and there are currently no shops available on the main axes. Therefore the secondary axes are becoming more dynamic, with all openings in this zone - except for a McDonald s opening in Largo do Chiado - taking place on Rua da Misericórdia, which still had several available spaces. There is currently some vacancy on Avenida da Liberdade due to several projects and regenerated buildings recently entering the market. This quarter recorded the opening of Scalpers and Loja das Meias, previoulsy located on Rua Castilho. We also expect the first Bvlgari shop to open this year, as well as the return of Versace to Lisbon s high streets. The Baixa district has been the zone to most benefit from tourism, and this is the market that most retailers target. Due to the lack of vacancy, rents in Baixa, whose principal axis is Rua Augusta, increased once again, reaching 90 /sq m. Rents in the remaining zones, including Chiado, remained stable, after the increase recorded last year. Porto is also on retailers radar. Rua de Santa Catarina remains in high demand among retailers, especially in the mass market segment, and the Clérigos & Aliados zone will also see new projects and shops emerge throughout 2016 and the following year, although these will target a more premium segment. Prime shopping centres have also profited from the growth in tourism, however, the disparity in the performance of prime and secondary units continues to grow. The shopping centre pipeline remains reduced. The Nova Arcada in Braga, measuring a total of 68,000 sq m, opened in the 1st quarter of 2016, with only sq m remaining, due to open in 2017, namely the Mar Shopping Algarve developed by IKEA Centres Retail Demand, Q Prime Secondary 3,16 3,26 3,37 3,37 3,37 3,38 3,38 3,45 3,55 2,99 2,67 2,46 2, (f) New Supply Stock Prime Rents, Q Format Prime Rent ( /sq m/month) Q-o-Q Q1/16-Q4/15 Y-oY Q1/16-Q1/15 Shopping Centres 100 5% 11% Retail Parks 10 High Street Retail Lisbon: Chiado Avenida da Liberdade Rua Castilho Baixa Príncipe Real High Street Retail Porto (Santa Catarina) Shopping Centres Low Evolution of Retail Developments Supply Retail Parks High Street Retail - Main Openings, Q Scalpers Retailer A Loja das Meias McDonald s Alperce Made In 6% High Street Retail High 9% -33% 38% 14% 50 43% Av. Da Liberdade Av. Da Liberdade Chiado Chiado Chiado Location 4,00 3,00 2,00 1,00 0,00 4

5 Market Pulse Q Map of Lisbon s Office Areas Definitions Prime Rent: represents the highest rent that can be expected for a space of the highest quality and specification in the best location in a market, as at the survey date. The Prime Rent reflects spaces with a minimum size, which varies according to the type of space: Offices 200 sq m; Shopping Centres and High Street Retail 100 sq m; Retail Parks 1,000 sq m. The Prime Rent reflects an occupational lease that is standard for the market/zone in question. It is a face rent that does not include any type of incentives granted to the tenant, and excludes service charges and local taxes. The Prime Rent represents Jones Lang LaSalle s market view, based on a combination of market evidence where available and a survey of expert opinion. Prime Yield : represents the best (i.e. lowest) rack-rented yield estimated to be achievable for a property of the highest quality and specification in the best location in a market, as at the survey date. The property should be let at the prevailing market rent to a first class tenant with an occupational lease that is standard for the local market. The Prime Yield represents Jones Lang LaSalle s market view, based on a combination of market evidence where available and a survey of expert opinion. 5

6 JLL Offices Lisbon Edifício Heron Castilho Partner logo if required Rua Braamcamp, nº 40 8º Lisbon Portugal T: F: Pedro Lancastre Patricia Araújo Mariana Rosa Fernando Ferreira Managing Director Head of Retail Head of Office Agency Head of Capital Markets & Corporate Solutions João Marques Fernando Vasco Costa Patrícia Barão Rui Pereira da Silva Head of Design & Build Head of Development Solutions Head of Residential Head of Residential Maria Empis Miguel Kreiseler Karina Simões Sofia Coelho Head of Strategic Consultancy & Head of Property & Asset Head of Hotels & Hospitality Head of Valuations Research Management COPYRIGHT JLL IP, INC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of JLL. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them. Printing information: paper, inks, printing process, recycle directive.