Portugal

Portugal is the most western country in Europe and in addition to its domestic market of some 11 million, it is also a gateway to a 250 million Portuguese speaking market including Brazil in Latin America and Angola in Africa.

Almost half of the Portuguese population lives in the metropolitan areas of Lisbon, the capital, and Porto, its second city located in the north of the country. Tourism is a strategic sector of the Portuguese economy with the main hotspots being Lisbon, Porto, Algarve and Madeira. The key cities of Lisbon and Porto are the first focus of attention for retailers entering the market, and although in the past town center retail has been secondary, the market is changing and high street retail enjoys now a strong interest from both national and international retailers.  

 

ECONOMIC SUMMARY
ECONOMIC INDICATORS*20142015F2016F2017F2018F
GDP growth 0.91.71.41.31.2
Consumer spending 2.11.31.00.90.9
Industrial production 1.80.92.51.61.4
Investment 2.52.63.02.52.4
Unemployment rate (%) 13.913.312.111.210.7
Inflation -0.30.10.81.21.4
US$/€ (average) 1.31.11.11.11.1
Interest rates 3-month (%) 0.20.00.00.00.2
Interest rates 10-year (%) 2.72.63.23.74.1

NOTE: *annual % growth rate unless otherwise indicated. E estimate F forecast
Source: Oxford Economics Ltd. and Consensus Economics Inc

ECONOMIC BREAKDOWN
Population 10.4 MILLION (2014)
GDPUS$ 230,0 billion (2014)
Public sector balance -4.5% of GDP (2014)
Parliament Social-Democratic Party and Popular Party coalition
PresidentAníbal Cavaco Silva
Prime Minister António Costa
Election dates2016 (Presidential)
RETAIL SALES GROWTH:
% CHANGE ON PREVIOUS YEAR
PORTUGAL2014201520162017F2018F
Retail Volume1.02.30.91.21.2
Retail Value-1.62.21.62.22.4

Source: Oxford Economics Ltd. and Consensus Economics Inc

LARGEST CITIES (2001)
CITYPOPULATION
Greater Lisbon2,809,168
Greater Porto1,731,354
Lisbon509,312
Sintra380,934
Vila Nova Gaia301,819
Porto218,231
Cascais209,376
Loures204,695
Braga181,553
Amadora175,952
Source: INE

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Lisbon: 38.725299, -9.150036
Sintra: 38.802869, -9.381659
Vila Nova Gaia: 41.123876, -8.611785
Porto: 41.165056, -8.602816
Cascais: 38.697057, -9.422295
Loures: 38.831549, -9.174109
Braga: 41.545449, -8.426507
Amadora: 38.757760, -9.224547

MAJOR DOMESTIC FOOD RETAILERS

Continente (Sonae MC Brand), Pingo Doce (Jerónimo Martins Brand)

MAJOR INTERNATIONAL FOOD RETAILERS

Jumbo & Pão de Açúcar (Auchan brand), Lidl.

MAJOR DOMESTIC NON-FOOD RETAILERS

Sonae Specialized Retail (Zippy, Sportzone, Worten, Modalfa, Vobis, Loop, Worten Mobile), Area, Salsa, Parfois, Perfumes & Companhia, A Loja do Gato Preto, Grupo Lanidor, Bertrand, Grupo Tempus.

INTERNATIONAL RETAILERS IN COUNTRY

Inditex, Primark, Ikea, H&M, C&A, Fnac, Cortefiel Group, Mango, Foot Locker, Virgin Active, Holmes Place, Calzedonia Group (Intimissimi, Calzedonia, Tezenis), Deichmann, El Corte Ingles (Department Store).

FOOD & BEVERAGE OPERATORS

Ibersol Group (Pizza Hut, KFC, Pans & Co), McDonalds, H3, Burger King, Portugalia, Multi Food Group (Vitaminas, Milano, Wok to Walk, Capri, Honorato), Starbucks Coffee, A Padaria Portuguesa.

TYPICAL HOURS
HIGH STREET
MONDAY - FRIDAYSATURDAYSUNDAY
10.00-20.0010.00-20.00Closed
SHOPPING CENTRES & FOC & RETAIL PARKS
MONDAY - FRIDAYSATURDAYSUNDAY
10.00- 24.0010.00- 24.0010.00- 24.00

Portugal is showing signs of a sustained economic recovery since the end of the financial assistance program in May 2014, and while growth last year was a mere 0.9%, the forecast for 2015 and beyond points to levels of between 1.5 and 2.0% per annum. This is underpinned by increasing levels of consumer confidence and hence spending. Retailer occupational demand is on the rise too, mainly for the high streets of Lisbon and Porto as well as for the top tier shopping centres.

Investment demand meanwhile is at its peak as a result of these improved economic fundamentals, coupled with high levels of liquidity.
Retail spaces, with a total supply of 3.65 million sq.m of GLA across 156 projects in October 2015, continue to be the main retail format in Portugal. Shopping centres account for the lion’s share, representing 82% of the total GLA, 2.9 million m², and for decades the preferred route of entry for foreign retailers. The sector is now reaching maturity and the volume of new supply came to a virtual stop in recent years, except for some expansion of existing schemes.

Retail parks in Portugal are a relatively small part of the modern retail supply, circa 430 thousand sq.m. and more recently have struggled with lack of retailer demand and low consumer interest. Factory outlets account for an even smaller share of supply, at just over 6%; in recent years, this format has benefitted from the tough economic environment but now faces more competition from full-price stores.

High street retail has been a very dynamic market, fuelled in no small part by ever-increasing tourist numbers. While retailer interest was initially focused mainly on the prime Lisbon locations of Liberdade, Baixa and Chiado, this is now extending to Portugal’s second city, Porto, where the Clérigos area and the Rua de Santa Catarina are the main focus of demand.

 

New Entrants to the Market

TUMINew BalancePINKORIMOWAGuess

TOP SHOPPING CENTERS BY SIZE
NAMECITYSIZE (GLA SQM) YEAR OPENED
Dolce Vita TejoLisboa122.0002009
Centro ColomboLisboa111.5211997
Mar ShoppingPorto103.5002008
Almada ForumAlmada77.8382002
Freeport Outlet & Leisure CenterAlcochete75.0002004
Palácio do GeloViseu73.5002008
Parque NascentePorto63.5002003
GaiaShoppingPorto59.6721995

KEY FEATURES OF LEASE
ITEMCOMMENT
Lease TermsHigh street contracts have to be divided into contracts agreed with the Old Lease Law in force (before 2006) and contracts signed under the New Lease Law. Before 2006 there was no term for commercial lease agreements and only the tenant could terminate the lease. After 2006, lease length and break options are freely negotiated between parties, in case no term is agreed the duration is 5 years. There is no regulation for shopping centres as this category is excluded from the Lease Law. Traditionally, shopping centre leases follow an independent structure and are celebrated for 6 years, exception made to anchor tenants in which case usually the duration is 10 to 15 years, with an option to terminate at the 5th or 6th year. In high street retail, break options are increasingly more common.
Rental PaymentIn high street, rents are paid monthly in advance. For shopping centres is freely negotiated between parties. Turnover/percentage rents are usual in shopping centres; 7% is the common practice for shop units, for anchors this percentage may vary from 4% to 6%. In high street contracts a security deposit, equivalent to one month rent, is normally required. Bank guarantees are common in shopping centres, ranging from 6 months to one year rent value.
Rent ReviewAlthough freely negotiated between parties, rents are normally yearly reviewed upwards according to CPI (published by INE), excluding housing.
Service Charges, Repairs and Insurance A service charge is payable in shopping centres and covers management fees, security, cleaning, landscaping, internal maintenance of common parts, external maintenance and insurance, servicing of elevators, utilities of the common areas and marketing costs. It excludes costs generated in the rented accommodation such as internal maintenance and insurance, utility charges and VAT. Tenant is directly responsible for internal repairs. Insurance of the building is paid by the landlord, but the tenant has an insurance of the unit contents as well as third-party liability insurance. In high street leases the landlord is responsible for the maintenance of the building and has to pay for the insurance, while the tenant has to cost internal repairs and the insurance of the unit. No service charges are applied.
Property Taxes and other costs Landlords are responsible for paying the local taxes - IMI (between 0.4 to 0.8% of revised fiscal value) and sewage tax (1/8 of IMI). 23% VAT applies to shopping centre rents. In some cases VAT is applicable in high street leases but that is very uncommon.
Disposal of a LeaseIn high street leases, sub-letting is possible under the terms of the lease, subject to landlord’s approval. Assignment rights are normally barred in the lease but will be subject to consent; this applies both to shopping centres and high street. Early termination is only by break clause – to be negotiated at outset of lease by mutual consent upon negotiation. If nothing is agreed, tenant may terminate once 1/3 of the lease contract duration is completed. At lease end, the tenant is responsible for re-instating the premises to the same condition as at the start of the lease, subject to normal wear and tear. All tenant improvements must be approved by the landlord subject to the alteration covenant in the lease and the fact that approval should not be unreasonably withheld.
Valuation MethodsRents are dictated by the market and shops are valued according with the location. Mezzanines and underground floors are not valued by the same rate as ground floor, usually are quoted 50% below the ground floor area, however this is not a solid rule as it all depends on the quality of the location.
LegislationLaw 6/2006 applies to high street leases. With recent law’s revision, for old contracts the landlord can choose to use a new negotiating tool to increase the rent and transition the respective contract to the new lease law regime. Leases must be in writing and the lease document forms the standard documentation required. A mandatory standard form of lease does not exist. There is no legislation for shopping centres and the standard contract is a “use of shop agreement”, which is signed by both parties.


Portugal Contacts

Sandra Campos, MRICS

Partner, Head of Retail
Direct:  +351 21 322 47 62
Office: +351 21 322 47 57
Mobile: +351 91 451 80 05