Commentary

Weekly updates  - 04/06/2020 - Covid-19

Economic overview – Covid-19

June 04, 2020
Economic overview

Portugal entered the 3rd phase of the reopening of the country and the economy, which includes the reopening of the majority of shopping centers, gyms, cinemas and kindergardens.

Portugal has issued a new social and economic program, in order to support the economic recovery. Continuation of the lay-off status, with new rules, additional support for exports and credit lines, and additional support for the education , justice and cultural sectors can be highlighted.
ECB confirmed as well its monetary and economic support for the economic recovery, with the reinforcement of c. €750MM to the emergency stimulus package.

Residential sector

Despite potential socioeconomic disruptions (unemployment increase, income reduction and less consumer confidence), Market players continue to reinforce that the market fundamentals in the residential sector are still present, with a high shortage of new quality supply. Market demand will continue to come from national and international buyers, from different income segments of the population. As new developments are being released, the importance of incorporating sustainable and integrated projects, with good accessibilities, mixed-uses, and taking advantages of exterior areas was also enhanced.
Positive indicators regarding projects' licensing continue to come from different cities across Portugal, with Lisbon and Vila Nova de Gaia indicating that the efficiency gains are being registered, with response deadlines being reduced while continuing to guarantee a quality supervision.

Office sector

Positive sentiment in the market in the last couple of weeks, with increased dynamism in the occupational market. Despite forecasts indicating a decrease in take-up levels (c.30%-40%), the strong momentum observed in the early months of the year show that take-up levels in 2020 should only be around 10% below the long-term average.
Investment volumes for Q2 and Q3 should observe significantly lower volumes compared to previous years, even though first quarter volumes should soften the H1 decline to some extent. Some activity will pick up sooner, with PE players waiting for the right timing to capitalize on opportunistic / corporate distress scenarios.

Re-entry into offices at only about 10-20% capacity for most corporate occupier clients. Most corporates are planning to re-occupy space up to about 50% of the capacity pre-covid in a time frame of the next 18 months. While many corporations are already adopting working-from-home policies as part of their business model, very few are looking to reduce footprint in the short term and instead intend to use the additional space to allow for social distancing measures.

Retail sector

With the reopening of the shopping centers as well as the increases in mobility in Portugal (according to Google Mobility Index, in May it was already registered increasing retail & recreation improvements), positive trends in retail are expected.

Covid-19 challenges are continuing to be faced by retailers across Europe. Market players have revealed that the main uncertainty is related with (i) potential new outbreaks - new lock down measures and social distancing, (ii) return to profitability, while guaranteeing flexible operations (which include right sizing real estate), (iii) Inventory management, including considerations on how much stock to hold and supply-chain disruptions, and (iv) sustainability.
Regarding current trends and retailer’s adaptation, it is important to highlight that, across Europe, Covid-19 has led to an increases in drive-thrus services (shopping and entertainment), including drive-in cinemas and drive-thrus for grocery.

Hospitality sector

Despite the recent struggles in the sector, there is evidence that Portugal could be one of the first countries in southern europe to recover from the crisis. A growth in reservations in the past two weeks was identified - according to the WorldHotel Index, reservations increased to 22% of the registered bookings last year, comparing with 8% in the previous month.

Another positive indicators on the recovery of the sector is the return of the airline traffic and activity: (i) Ryanair has reactivated more than 100 rouths to Portugal, (ii) KLM has also reactivated flights to Porto and (iii) During June Algarve will see an increase in reactivated routes from Edelweiss, Luxair, Transavia, TUI, Volotea, WizzAir and Easy Jet.