Lisbon is increasingly becoming a major international residential destination, according to the study “Lisbon Residential Market – A Rising Star” by the consultancy Savills.
Lisbon has occupied an increasingly preponderant position in the European residential market. There are multiple factors that make Lisbon one of the most desirable and attractive residential destinations, competing side by side with internationally renowned cities. A privileged geographical position, mild climate, affordable cost of living, security, social stability, international business ecosystem, history and culture, highlight Lisbon and contribute to the title of the coolest city in Europe. This is one of the conclusions of the most recent Savills Portugal study dedicated to the Lisbon residential market “Lisbon Residential Market – A Rising Star”, presented at the Salão Imobiliário de Portugal (SIL) on May 13, in a ceremony attended by market experts, journalists and clients.
The Portuguese capital has been reborn after a profound urban rehabilitation process started in 2011, which transformed Lisbon into an urban, modern and innovative metropolis. As the city has increased its notoriety and visibility in the global context, being the headquarters of many international companies and the stage of renowned international events, its attractiveness has multiplied, attracting new nationalities of buyers and residents who play a key role in the development of the city, bringing it closer to the other European capitals.
Lisbon in numbers
The Lisbon region has 2.8 million inhabitants and 354,000 companies, and is responsible for 36% of the national GDP. More than 41% of the population living in the city have high academic qualifications. In terms of tourism, Lisbon also receives more than 5 million foreigners per year.
The Metropolitan Area of Lisbon is home to 29% of the families in Portugal, and more than 60% of the households are composed of one or two people.
In terms of housing stock, there has been a slight increase of 1.7% over the last 10 years, and in the Lisbon Metropolitan Area this increase has been below the growth in resident population, putting supply under pressure.
Lisbon as a Smart City
Elected by the European Union as one of the Smart Cities alongside cities such as London and Milan, Lisbon has set the course to be an innovative, sustainable and creative city.
The city of the “seven hills” currently offers a wide range in terms of sustainable mobility that allows for easy commuting. Whether on foot, by bicycle, electric scooter, public or shared transportation, the panoply of possibilities is diversified, within a global framework of sustainable development.
Market in Lisbon and outlying areas
In 2021, the average sales price per square meter in Lisbon was 3.973 euros, the highest value in the last five years, which represents an increase of 4% compared to 2020 and 6% compared to 2019. The number of sales also accompanied the increase in average sales prices, with more than 11,000 homes sold, which took into account a growth of 17% compared to 2020 and a very residual decrease of 1% compared to 2019.
According to Savills’ study, Lisbon outperformed the average Prime segment prices of cities like Madrid and Barcelona, and this segment is expected to follow the worldwide growth trend (4.3%), but at a more moderate pace (1.9%) compared to previous years. By the end of 2021, Lisbon had nearly 6,000 new homes available, which represents 35% of the available supply in the capital. Compared to the year 2020, this number decreased by about 25%.
With regard to the average price per square meter, the Chiado area is the one with the highest value range – between 8,000 euros and 12,000 euros. Next is Príncipe Real, where the price per square meter starts at 8,000 euros and can go up to 11,000 euros, and in third place is Avenida da Liberdade, where the maximum value can reach 10,000 euros.
The municipalities of Cascais and Oeiras have gained preponderance, complementing the Lisbon region market, since they present quality housing solutions for those who seek to be close to Lisbon and, at the same time, live with quality of life and enjoy green spaces and easy access to the coastline.
What has changed since the pandemic?
With the pandemic, the demand for housing remained high, but with different motivations. The confinements and the obligation to work remotely led families to reassess their housing needs. It was quickly apparent that most properties were not prepared for the reality of working remotely, and there was no clear division between the family sphere and the work space. Larger homes, outdoor space, and areas that could be converted into work spaces became the priority requirements when looking for a new home.
In addition, the pandemic has also brought a new awareness of the efficiency and sustainability of buildings. This is no longer a choice of individual owners, but an obligation of society to extend the life of buildings, increase their resilience, and improve their comfort levels with health benefits.
Leasing and Built-to-rent
According to Eurostat data released in 2020, only 26% of the Portuguese population lives in rented homes. The landlord culture is very much ingrained in Portugal, supported by a number of factors such as historically low interest rates and competitive spreads that make buying the most advantageous option. To this rationale, we can also add a rental offer that is not competitive, neither in number nor in quality. However, this reality is now under threat.
The gradual increase in demand in the rental market is a response to the exponential increase in sale prices, as well as changes in demographic profiles.
In the last two years, around 110,000 new lease contracts were signed in the Lisbon Metropolitan Area, which represents more than 30% of the national total. At the end of 2021, the average value of new lease contracts stood at 11.18 euros/m2, showing a decrease in relation to the average value observed in 2020, situated at 11.69 euros/m2 and a decrease in relation to 2019 with a value of 11.83 euros/m2.
According to the SIR platform, the number of rental dwellings recorded an increase of more than 40% between 2019 and 2020, with the entry of about 1,900 dwellings. Underlying this increase is the crisis experienced in the tourism sector, which has led about 15% of local accommodation owners to migrate their properties to the traditional rental market.
The Built-to-Rent model, a consolidated reality in many European markets, is now beginning to capture the interest of international developers and investors in Portugal. The economic and demographic fundamentals play in favor of the development of this product. Besides the high cost of acquiring property, there is a paradigm shift brought about by new generations who promote and defend new values, such as mobility, flexibility, sense of sharing, and community. Currently, the bet in this segment is still concentrated on international investors and developers who are already present in the real estate market and want to diversify their products.
Alexandra Portugal Gomes, Head of Research at Savills Portugal, underlines that “much more than analyzing statistics, we wanted to look at the Lisbon Residential Market as a whole and understand what factors and rationale make Lisbon a successful case of deep transformation. It is very interesting to observe the extreme resilience of this segment, which reached record levels at the end of two years of pandemic and with very encouraging forecasts for 2022 that promise to continue the excellent performance”.
Source: Diário Imobiliário