Portugal

Portugal is the most western country in Europe and in addition to its domestic market of some 10.5 million people, it is also a gateway to a 250 million Portuguese speaking market including Brazil in Latin America and Angola in Africa.

A large share of the Portuguese population lives in the metropolitan areas of Lisbon, the capital, and Porto, its second largest city which is 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 cities of Lisbon and Porto are the first markets retailers focus on when entering Portugal, and although in the past town center retail has been secondary, the market is changing and high street retail now enjoys strong interest from both national and international retailers.

 

ECONOMIC SUMMARY
ECONOMIC INDICATORS*2017f2018F2019F2020F2021F
GDP growth 1.31.11.11.11.1
Consumer spending 1.41.11.00.90.8
Industrial production 1.72.11.61.21.3
Investment 2.32.82.52.12.1
Unemployment rate (%) Effective Rate10.09.28.58.38.2
Inflation (%) Effective Rate1.11.61.91.81.8
US$/€ (average) 1.01.01.01.11.1
Interest rates short term (%) -0.3-0.3-0.20.10.5
Interest rates 10-year (%) 4.54.64.54.54.4

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

ECONOMIC BREAKDOWN
Population 10.5 MILLION (2017F)
GDPUS$ 196.2 billion (2017F)
Public sector balance -0.1% of GDP (2014)
Parliament Left wing coalition
PresidentMarcelo Rebelo de Sousa
Prime Minister António Costa
Election dates2017 (Local government)
RETAIL SALES GROWTH:
% CHANGE ON PREVIOUS YEAR
PORTUGAL2017F2018F2019F2020F2021F
Retail Volume1.11.01.10.90.9
Retail Value2.32.52.82.62.5


LARGEST CITIES (2001)
CITYPOPULATION
Greater Lisbon2,821,349
Greater Porto1,719,021
Lisbon504,964
Sintra383,946
Vila Nova Gaia300,001
Porto214,119
Cascais210,889
Loures207,567
Braga181,182
Amadora178,169
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, Mercadona (recently entered, first unit opens in 2019)

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, Calzedonia Group (Intimissimi, Calzedonia, Tezenis), Deichmann, El Corte Ingles (Department Store), Kiabi

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, Dunkin Donuts (recently entered)

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

The retail sector has, since the 1990s, been the most dynamic sector in the property market in Portugal. Many modern shopping centres have been developed successfully, catering to retailers keen to tap into the increasingly demanding consumer. Thanks to best-in-class design, leasing and management practices, Portuguese shopping centres have attracted a considerable amount of foreign investment.

Modern retail space (shopping centres, retail parks and factory outlet centres) in Portugal as at Q2 2017, amounted to circa 3.8 million sq.m. Shopping centers represent over 82% of the total supply, with over 3 million sq.m. and retail parks total circa 460,000 sq.m. and factory outlets centres around 220,000 sq.m. While almost all district capitals in the country feature at least one modern shopping centre, most of the GLA is concentrated in Lisbon and Porto, with the Greater Lisbon region at around 1 million sq.m. and Greater Porto circa 780,000 sq.m.

After decades of stagnation, resulting largely from an antiquated, tenant-protective lease law which hindered modernization, the high street retail scene has become very dynamic market in recent years, fueled by a combination of a major overhaul of landlord and tenant legislation, improving consumer sentiment after the economic crisis, and ever-increasing tourist visits. 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 now in high demand.

Overall supply in Lisbon city-centres stands at circa 225,000 sq.m. whereby the three prime retail locations referred above account for 76%, and other city-centre retail clusters, such as Praça de Londres, Campo de Ourique, Principe Real and Cais do Sodré, account for the remainder.
The city of Porto offers a total of 191,000 sq.m. of retail area in its prime retail locations in the city center: Baixa (downtown Porto), Clérigos. Boavista and Cedofeita.

Portuguese retail rents are extremely competitive in the European context and have shown to be more stable in many cases. Prime shopping centre rents are currently of the order of €97,5 sq.m. /month, and high street rents €115 /sq.m. /month.

 

New Entrants to the Market

CK UNDERWEARDUNKIN DONUTS MERCADONA (2019)QUEM DISSE BERENICE (QDB)NYX COSMETICS
INGLOTBROWNIEFOREVER 21OVSLEICA
ARMANI EXCHANGE BULGARIVERSACEPINKO

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
Nova ArcadaBraga68.5322016
Parque NascentePorto63.5002003

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, and in case no term is agreed, then the duration is 5 years. Since 2014 landlords with old contracts can choose to use a new negotiating tool to increase the rent and transition the respective contract to the new lease law regime. 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 streets, rents are paid monthly in advance. For shopping centres it 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 to their 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 revision of the laws, 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