Tourism, education and Ryanair are putting Porto on the radar of international investors.
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A corporate boutique specialising in capital markets, operating across the spectrum from property development to investment, but exclusively in the corporate sector. This is the core business area of the consultancy firm Havos Real Estate, which has been exclusively appointed to market the ‘Gaia Business District’ in Vila Nova de Gaia: a business park with 32,342 square metres of gross lettable area and 59 units, with an occupancy rate of 76 per cent and an average rent of 5.13 euros per square metre.
The north of the country is, in fact, one of the main areas for international investment – something that has not been the case for several years – as Luís Milagre Mesquita, Partner and Head of Capital Markets at Havos Real Estate, points out in an interview with *Jornal Económico*. He cites tourism, education and Ryanair’s investment in Francisco Sá Carneiro Airport as the main drivers of change.
The company has recently expanded strategically into the Algarve with the aim of attracting 100 million euros for property investment in the region by the end of 2027, and believes that by 2029, the market will account for around 20 per cent of the one billion euros in transactions that the consultancy aims to achieve by 2030.
We deal with everything from property development to investment, but exclusively in the corporate sector. We do not operate in the residential market; we do not sell flats, nor do we arrange lettings. The corporate sector is reflected in the profile of both our partners and our team, but also in the profile of our company, which is closely linked to investment.
We pay close attention to what the majority of investors looking to enter our market are interested in. We’ve come to gain a bit of an understanding of the direction the market is taking in terms of investment decisions and asset classes.
Is the ‘Gaia Business District’ an example of such assets?
Yes. We are marketing it on an exclusive basis, which is indicative of the interest in this type of more hybrid asset that fits perfectly with the value-add approach. We currently have an occupancy rate of 76 per cent, with a gross floor area of 32,342 square metres. The vacant space amounts to around 7,500 square metres, comprising two units that have not yet been refurbished.
The refurbished area is 100 per cent occupied, and there is very significant demand for space; in fact, there is currently even a waiting list for new tenants. These assets are a work in progress.
Essentially, this 76 per cent occupancy rate already guarantees a stable return for new tenants, whilst offering very attractive potential for future gains. For investors who are no longer satisfied with lower yields and who expect a solid yet very stable return, this type of asset allows them, through active management, to add value and increase returns in the medium term, whilst maintaining security, with a guaranteed return from the outset.
When will the remaining 7,500 square metres be available for occupancy? Are there already any interested parties?
Several organisations have expressed an interest, but at the moment, as we are in the process of marketing and selling the asset, the owners feel it is best not to take any steps to finalise these negotiations, but to leave it open for a while for anyone who might come forward and develop the site. We believe that, given the expressions of interest we have received, finding a new occupant for this space will be relatively straightforward.
In fact, one of the premises is already practically closed, but the idea is not to proceed with anything until it is clear who the investor will be, because whoever comes in will, of course, have every interest in being able to make the decisions.
What are the objectives set for this project?
We have a portfolio here with an average lease term of 4.14 years. This 4.14-year term essentially provides medium-term stability in terms of rental income. The aim for this property is to increase the rental income. The rents are well below market value.
Consequently, this lease term enables investors in the asset to almost double the rental income from the property within five or six years; and, when combined with the unoccupied portion of the property – which will generate further income – this strategy of increasing rents offers the prospect of adding value in the medium term.
Ten or twelve years ago, nobody would even have considered investing in assets of this kind. Today, we see that capital and investors are becoming increasingly sophisticated and are seeking ever more creative products that offer them higher medium-term yields.
How does the contract renewal process work?
It depends. This is actually a bit of a blank canvas, because in practice it allows for strategic management with a view to the future, but there is an important issue here. If we look at the average rents for spaces equivalent to these, for example, in the northern market we see figures ranging from 12 to 14 euros per square metre.
We are therefore recognising the growth potential of these spaces. This relates to several factors. It relates to the project’s stage of maturity, which still needs to develop over the next few years, and, above all, to the type of tenants.
Initially, when these types of spaces are converted from industrial to business centres, the majority of tenants they attract tend to be from the light industrial sector, showrooms, or small-scale warehousing. And, of course, this type of tenant pays rents closer to those for logistics or warehousing. Consequently, the rents are lower.
But as these spaces begin to mature, what happens is that many new tenants start to move in – offices and service companies – and, naturally, this type of tenant has higher expectations and pays a rent that is significantly higher than that paid by the other category of tenants. Contracts are renewed, and the organisations that wish to remain there do so.
What sectors are we talking about?
We have a shared services company. We have a software development company, a Remax agency, companies offering activities for children, a vocational college, and even offices for construction developers, all of which coexist alongside small storage companies and a metalworks shop.
It’s an ecosystem that’s constantly evolving, but it’s clear that for these shared-services companies, the choice between occupying space in a prime office block – where they’d pay 18 to 20 euros per square metre – and being able to have an excellent office for half that price obviously makes this a very attractive option.
Although this was once a factory and is now a business centre, the location is entirely urban and right in the heart of the city. The Santo Ovídio metro station is a five-minute walk away, and the two motorways are a three-minute drive away.
What is the current state of this market segment?
In terms of occupancy, demand is huge. In fact, if all the spaces were completed – so to speak – they would be occupied, because everything currently available for let is fully let. What we’ve noticed is that there is a very strong appetite amongst tenants for these spaces.
From the tenants’ perspective, it is very clear that there is high demand for these spaces. On the investors’ side, based on everything we know in terms of track record at a national level, we have seen numerous investments in spaces of this kind and in the conversion of former industrial or storage spaces into rental properties.
These alternative value-add products are very attractive to investors, because they also tie in with the broader aim of rehabilitating and regenerating existing property assets.
If we look closely at how times have changed, the number of industrial units that have been left vacant or abandoned – and which, in that state, are essentially a problem for society, for urban planning and for the quality of life.
These business opportunities ultimately play a very important role in the regeneration of this urban fabric. It is a trend we see in the United States and the Netherlands, to name a few examples we are familiar with.
There are even companies that focus almost exclusively on the refurbishment and investment in this type of asset, but we are well aware that these assets have been in high demand amongst investors.
More international or domestic investors?
We have international investors, but these days we already have a very significant number of domestic investors. In this type of asset class, we have companies and funds taking a more value-add approach.
This is a very interesting product for family offices, because in practice it is an investment that, for example, a more ‘core’ institutional investor would not consider, as it is a product which, although it has great potential, requires a team, management and daily contact with a very wide range of entities. A core investor would even prefer a lower return, provided it is risk-free and requires no investment in terms of effort.
Now, for a family office, this is an extremely interesting product, because the management, the work and the added value put into the product can translate into very high future returns. Ten years ago, there were practically no international investors looking to invest in the North.
When they entered Portugal, they would say, ‘We’ll invest in Lisbon’, and only after gaining a few years’ experience in Lisbon and some knowledge of the market would they consider investing in Porto or the north of Portugal.
Nowadays, that is no longer the case. Some international investors go straight to the North, others head straight for the South, whilst others invest in the North, South and the Algarve straight away. Access is much more widespread.
I can say that we are currently working exclusively with new investors who are looking to make their first investments in Portugal, from countries such as the United States, the United Kingdom and the Netherlands. We are currently in direct discussions with investors who are considering Portugal as their first investment at this stage.
The main issue is that they are all coming to Portugal, but they are coming with expectations of returns and yields that are slightly higher than the traditional yield on a core product available on the market. A core product available on the market might offer a yield of around 6 per cent. And the investors who are coming are those who are asking for 7 per cent or more.
What reasons do you see for this more democratic approach?
I think there are a number of interlinked reasons. Firstly, I think the way the country is perceived abroad has changed considerably. Tourism has also played an absolutely crucial role in this change.
In the case of the North in particular, I can trace this back to the universities and the Erasmus programme, which played an absolutely pivotal role in bringing foreign students to Portugal – to Porto in particular – and who gained a profound understanding of what the city was like and naturally shared their experiences with their families and friends.
And then this coincides with Ryanair’s investment in Porto. This has exponentially increased visitor numbers and the city’s international profile.
Luís Milagre Mesquita , Partner & Head of Capital Markets
“The city was a hidden gem. The universities, Erasmus, Ryanair and the airport were a boost , in terms of what happened in terms of investment, not in Porto, but in northern Portugal.’
What are the investment volume targets?
In terms of the overall framework, our target up to 2030 is to carry out around one billion transactions. It’s not set in stone. It’s more a matter of trajectory. We’ve already carried out around 600 million, and that’s our expectation. We believe that between 2027 and 2030 we have the potential to carry out around 400 million transactions.
In terms of the mandates we currently hold, we have around 200 million in assets to market. Of course, I’m not referring to exclusive assets in this pipeline. Exclusive assets are relatively few and far between across all market players.
This Gaia project is an exclusive asset. However, we have access to around 200 million potential transactions across all asset classes: from land and housing developments to hospitality, office, industrial and logistics assets.
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