Portugal offers hospitality investors post-Covid opportunities

tram Lisbon

Situated on the south-west edge of Europe, Portugal has sometimes failed to generate the hospitality excitement of some of its Mediterranean rivals but over the last couple of years that has started to change with an influx of interest from outside capital.

That growth was buffeted by the Covid-19 pandemic that decimated the global tourism industry for much of that year. Transactions across Europe fell in 2020 with the market still in limbo thanks to government financial support.

But with mass vaccination being rolled out across Europe there is hope that summer 2021 will at least allow some tourism to take place and if the market recovers enough expect deals to really pick up again towards the end of the year.

“After September, if nothing changes, and if there are no new significant support mechanisms, with the end of the bank moratoriums, for sure a lot of opportunities will arrive, increasing the market attractiveness,” Margarida Almeida, CEO of hospitality management company Amazing Evolution said.

“Obviously, in this phase we believe that this attractiveness will be much towards more opportunistic investors due to the prevailing market conditions.”

According to STR, a data and analytics specialist, there are currently 32 properties in the timeline for 2021, with 2,718 rooms, representing 4% growth.

Beyond that there are other projects, which illustrate the interest in the market. ECS Capital has reportedly placed two recovery funds with assets of around €1.4 billion on the market, PropertyEU reported. This portfolio features 20 Nau hotels, and includes the five-star Palácio do Governador hotel in Lisbon. Another recent announcement is that the Sana Hotels group is preparing to build a five-star luxury hotel in the centre of Vila Nova de Gaia, just south of Porto.

The pandemic has made putting money into urban areas trickier but Philip Bacon, senior director at hospitality consultants Horwath HTL said that some areas retain their attractiveness.

“Although there is still considerable uncertainty about how urban properties will deal with emerging from the pandemic, especially for business tourism, the investment potential of both Lisbon and Porto as well-rounded, destination cities, with strong leisure market appeal, remains in place,” he said.

“International, branded chain operators are still relatively under-represented in both cities and there is still an opportunity for investors both to develop new properties and transform existing establishments in response to changing consumer demands and behaviour.”

Golden Visas

Since it launched in 2012, one of the big drivers of inward investment in recent years has been Portugal’s golden visa program, bringing in billions of euros and handing out residency to thousands of investors and their family members. The success of the programme means the government can change the rules and from January next year. From then property purchase in Porto, Lisbon and some other coastal area won’t qualify. The idea being to funnel investment towards the interior of the country.

Ombria Resort, which is set to open its first phase in the second quarter of 2022, mixes hotel, spa, restaurants and a golf course, alongside a number of residential offerings. Although it is close to the Algarve’s famous beaches and only 25 minutes from faro airport, properties there qualify as “territory of the interior” meaning anyone spending €400,000 will qualify for a golden visa.

“This has contributed to 40% of Ombria Resort’s Viceroy Residences being sold off-plan between launch of sales in December 2019 and March 2021,” a spokesperson told Hospitality Insights.

Covid Challenges

While the long-term trends for tourism growth remain pretty good, there is no question that the damage done by Covid-19 and the subsequent lockdowns has people jittery.

“The pandemic, like all radical forces for change, has brought opportunity as well as suffering, and Portugal is well-placed to take advantage of the opportunities and build on the success that has been growing over the last few years,” Bacon said.

Even so there are certain areas that remain attractive, such as under-invested resorts that may need repositioning and relaunching, buildings in good locations that can be converted to hospitality usage. Key investors at this point in the cycle include private equity real estate funds that focus on distress.

“At this moment, the only investors we are seeing looking into opportunities are big investment and private equity funds as well as NPL buyers,” Almeida said.
Like so many other leisure resort destinations, Portugal has suffered at the hands of Covid. Tourism revenues are expected to have dropped 80% in 2020, according to Portugal’s hotel association, Reuters reported. Even so there is still a hope that 2021 will be better and that Portugal’s attractiveness make it a popular choice for investment in the future.

Insight Comment
For years Portugal has flown under the radar in terms of hospitality investment. While its Mediterranean rivals like Spain and Greece may have attracted more headlines, there remain pockets of opportunity in the country that are largely untapped. This year is likely to see investors target distressed assets as the world navigates its way out of the Covid-19 pandemic.