At a time when, all over the world, they are beginning to define or implement measures of social unrest and to reactivate many economic activities, they begin to try to identify the cyclical or structural “damage” that the pandemic crisis will cause in sectors of the economy. One of the most potentially affected will be the real estate sector, an area of special importance for the business fabric of our country.

It is not easy to estimate the magnitude of the impact of the pandemic crisis on the evolution of the real estate market in Portugal. The impact in the short term will certainly be high, in the volume of transactions and in the sale and lease prices. Even more so if we consider that, since mid-2013, we observed a strong recovery of this market in the post-international financial crisis of 2008 (heightened in Portugal with the request for financial assistance in 2011).

For example, after a 15% drop in the housing market over 3 years, as of the 3rd quarter of 2013, average house prices rose 56% by the end of 2019 – an average annual pace of over 7%, reaching higher than the previous peak of this market.

Indice de preços da habitação em Portugal

The dynamism of the recovery was also seen in terms of the volume of transactions, which went from a quarterly average of 20 thousand accommodations in 2013 to around 45 thousand in 2019.

#alojamentos vendidos em Portugal

Similar patterns were observed in other market segments, from offices to commerce, from logistics to hospitality – although with different timings and magnitude of recovery.

Operators in the sector foresaw another positive year for 2020, although much more moderate in terms of prices, considering that some areas of the country (such as Lisbon and Porto) had already reached high prices for the average purchasing power (and financing) of the national investor, to which was added some recovery in the construction of a new building that would contribute to a greater balance between demand and supply compared to previous years.

Naturally, the pandemic has profoundly changed expectations for market developments, at least in the short term. A survey conducted earlier this month by APEMIP to a wide range of real estate agents, concluded that more than 95% of them registered a drop in turnover in April and a drop in demand of over 92%, with the majority of respondents reporting a high volume of dropouts from buyers in relation to ongoing businesses.
And how will the market behave, in a post-confinement phase?

The dimension of the impact in the short term, as well as the evolution in the medium and long term, will depend on the profile and time extension of the pandemic crisis itself (on a global scale, because the national market today is very dependent on several “demand-emitting countries” strongly affected), the magnitude and impacts of monetary and fiscal stimuli to economies and possible changes in the pattern of demand in the various market segments.

With the recessive impact of the pandemic far greater than that of the 2008 financial crisis, it is difficult not to foresee a drop in prices at least similar to the previous crisis in the sector. On the other hand, it seems to me that the probability of an economic recovery with a “V-shaped” pattern seems to be reduced, among other reasons because the “opening” will be very gradual and because a high level of uncertainty affects the expectations of economic agents, postponing consumption and investment decisions.

As in other markets, expectations play a decisive role in the real estate market: the current crisis has quickly changed the balance of forces, from a “sellers market” to a “buyer market”, reinforced by the growing weight of investor owners (less stable) ) in the market and the expected increase in the offer of new buildings. Thus, despite the uncertainty, it will be reasonable to anticipate a drop in prices of at least 10% to 15% over the next 12 to 18 months.

And in the medium term? However, with enormous uncertainty in relation to the time needed, however, the recovery of the real estate market is expected, namely because some structural trends were only interrupted, and some others were reinforced with the present crisis.

Some examples: the extremely low interest rate environment will remain for much longer which, implying massive transfers of income from savers to investors, will maintain the structural demand for yield pickup, with real estate being an obvious option; the country’s attractiveness in terms of quality of life, safety and affordability has, until now, been reinforced with the public management of the pandemic and the response from hospital services; despite the cyclicality of the tourism sector and potentially being one of the last sectors to react, I doubt that the positive primary trend has run out, not least because it is a small country that receives tourists from large outbound markets.

All of this is reasonably to be expected. It will be more difficult to anticipate with what “type of demand” we will emerge from the crisis in the real estate market. In other words, in a post-pandemic scenario, will we see a deep and lasting change in the pattern of demand in the real estate market?

In the housing market, it is very likely that a significant number of properties “diverted” to the local accommodation (LA) market will now redirect to long-term leasing, due to lack of demand from tourists (and part will be sold, at least level of indebtedness of many LA projects). But permanently? Hardly … a recovery in tourism could reverse the trend in the long term, considering the huge difference in potential profitability between the two segments (and perhaps because the local accommodation can be seen by the consumer as a “safer” solution, due to the greater isolation) .

The evolution of LA will, in the medium term, have a strong impact on real estate transactions in housing and on expectations for the construction of a new building. But in the longer term and with the growing impact of millennials on the economy, a structural change in this real estate segment is likely, due to the anticipated trend in the consumer towards the “use and not the possession” of the good.

The retail and commerce real estate segments are expected to take considerably longer to recover, because the pandemic crisis will reduce the number of companies in the sector and because it has generated a strong boost to e-commerce, which is expected to see much higher growth rates in the coming years. In addition, the installed capacity in this area is not at all deficient.

The hotel real estate segment is expected to be one of the most affected, taking more years to resume than tourism. The sector was “caught” in the midst of a strong expansion of supply – according to Cushman & Wakefield, it was estimated to invest in 180 new hotel units by 2023, enough with construction already started, all after 5 years of growth (only 60 new hotels were opened in 2019). In contrast, countries like Italy, Spain or England can observe a medium-term contraction in tourism – due to the overwhelming way in which these countries were affected by the pandemic – and benefit countries like Portugal, thus mitigating, in the final analysis, part of the negative effects on this real estate segment.

One of the most interesting segments to monitor in the coming years will be that of industrial real estate and logistics: already in full growth before the pandemic, it should be strengthened, particularly in terms of logistics, due to the faster growth in e-commerce and possible changes in the geography of production (and distribution) in various sectors of activity – after decades of production offshoring, we may see some trend reversal, with the emergence of “waves” of nearshoring, benefiting countries with competitive cost / benefit ratio, such as Portugal .

But perhaps the biggest unknown for the coming years is the evolution in the offices. With a very low percentage of idle properties, this segment was booming until the beginning of 2020; the pandemic has altered the very short-term expectations on the demand side, but more interesting will be to monitor the long-term impacts of the sudden increase, in a contingency situation, of the option for teleworking.

A radical change in the companies’ physical functioning options does not seem likely, it will be more plausible to have cost rationalization processes with hybrid workforce management options; thus divergent forces will occur between the primary trend of growth in demand versus the impact on the real estate market of said rationalization.

But announcements such as those of the technological multinational Twitter – that its workers will be able to work from home “forever” – will only increase the level of uncertainty in this segment, for the coming years and on a global scale.


Afonso Barbosa

Professor de Contabilidade e Controlo na AESE Business School.


May 31, 2020