As we enter the final week of a volatile year, bondstone continues to closely monitor a rapidly evolving economic situation. The coming year is impossible to predict as sustained inflation, spiraling interest rates, strained supply chains and tight labor markets – amongst a myriad of headwinds – will behest the trajectory of the Portuguese real estate market in a tumultuous 2023.
Together, these factors will probably lead to a mild-to-moderate recession (in most of OECD countries) or to a sharp economic slowdown (in Portugal). The pandemic’s economic impact largely mimicked that of a natural disaster, but the economy bounced back over several months. A 2023 near-recession would likely be a more traditional one. Full recovery would take place over quarters or years, not months.
bondstone forecasts that, unless the Fed (and subsequently the ECB) changes course, 2023 will be characterized by slower GDP growth as monetary policy continues to tighten and the Portuguese economy adapts to inflation. That shall translate to less credit and lending activity, and continued volatility for asset pricing. To minimize any damage from rising interest rates, Portuguese real estate players will need to think carefully about leverage, with a sharp focus on managing higher borrowing costs and bolstering cash flows.
This coming recession or economic slowdown is not real estate-driven or debt-driven, as it was in 2008, and long-term fundamentals of the Portuguese real estate market remain solidly in our favor…. but there’s nothing new about real estate’s cyclical nature. Seasoned private equity real estate investors understand how to take advantage of those ups and downs. Consequently, after underwriting three large-scale opportunistic residential deals in 2022, bondstone intends to move into a more cautious investment posture through 2023 via more defensive / recession-proof asset classes, knowing that our long-term guidance points to more positive signs (i.e., a more offensive approach) in 2024 and beyond.
2023 will likely be a year paved with significant risks… that shall translate into opportunities ahead. bondstone remains bullish Portugal in the long run and remains committed to deploying at least half a billion euros in the Portuguese market by co-investing with prominent international investors (Limited Partners) seeking a reliable local partner.