The recent report by Idealista, which looked at major cities across Europe, has shown that Milan, Lisbon, and Barcelona lead the pack with rents surpassing 20 euros per square meter (euros/m2). Notably, Porto and Lisbon have experienced the most substantial annual increases in rental prices in Portugal and across Europe.
With both the capital and Portugal’s “second city” showing such rapid growth, we explore what’s driving rental increases across the country.
Portugal’s Cities Leading the Way in Europe
In September 2023, rental property prices in Portugal soared to new heights, reaching an average of 15.5 euros/m2—a significant 31.1% increase from the previous year. This spike is largely attributed to the imbalance between high demand and low residential supply, exacerbated by increased tax burdens and market uncertainties.
Lisbon—Skyrocketing Rental Prices
Known for its rich history and vibrant culture, Lisbon has seen a staggering 32.9% rise in house rents between September 2022 and September 2023. Thanks to its global charm, the city has become a sought-after destination for expats and digital nomads looking to make Lisbon their home. This influx of international residents has significantly fuelled demand for rental properties.
In addition, the city’s strict zoning laws combined with the slow pace of new construction, which has not kept up with growing demand, has put further pressure on rental prices. It’s also the case that many properties in more central areas have been converted into short-term holiday rentals, putting further strain on the long-term market.
Economic growth in Lisbon, coupled with its growing reputation as a tech hub, has attracted a more affluent workforce. This demographic shift has led to increased demand for high-quality rental properties, driving up prices in the more desirable areas of the city.
Porto’s Popularity with Tenants
Porto’s rental market is also on an upward trajectory, with an impressive 34.6% increase in rents year on year.
Porto has undergone a renaissance in recent years, transforming into a vibrant cultural and economic hub. The city’s rich history, combined with its contemporary art scene and burgeoning tech industry, has made it an attractive place to live, particularly for young professionals and creative minds.
Similar to Lisbon, Porto faces a challenge with housing supply. The city’s historic centre is UNESCO-listed, which limits new construction. Many buildings have been renovated for tourism or high-end residential use, reducing the availability of affordable long-term rentals. This scarcity of housing options has naturally led to increased rental prices.
An Opportunity for Investors
Despite increasing rental costs, properties in Portugal’s major cities still remain attractive to property investors and are generally below the prices found in other major European cities.
This, coupled with increasing demand from tenants, offers an excellent opportunity for higher yields and a low risk of long void periods. Coupled with low development rates, this also means that good capital appreciation is likely thanks to liquidity within these markets as the demand remains stable.
The escalating rental prices in Lisbon and Porto reflect a broader trend across Europe, where major cities are witnessing a revival in urban living. The high demand and limited supply for rental properties in Portugal suggest a robust and dynamic market which is ideal for investors.
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