PORTUGAL: An Introduction to Real Estate

The Portuguese Real Estate Market in 2025

Introduction

In 2024, despite the continuation of some of the factors of uncertainty observed in 2023 (and the worsening of the Middle East conflict which began at the end of 2023), the Portuguese economy proved resilient, with growth outstripping that of the eurozone, making it one of the best-performing countries in the EU. The continued deceleration in unbridled inflation together with the gradual but significant fall in interest rates and yields, have boosted investor confidence, with investors showing more dynamism and decision-making power than in 2023.

Market overview

The performance of the Portuguese economy over the course of 2024 has attracted the attention of many investors, who have taken a positive view of the combined effects of the macroeconomic upturn, the geopolitical stability (as compared to Eastern European countries that are closer to the armed conflicts currently raging in the world) and the increasingly good position of public finances (which are currently healthier than those of some Central European countries).

The signs of caution felt in 2023 slowly faded in 2024, with the property sector in Portugal showing strong signs of resilience and increased optimism. The increase in financing costs that had been felt in 2023 was gradually replaced by a healthy but marked fall in interest rates, which, alongside sustained economic growth (still slow but somewhat positive in the context of the eurozone), led investors to be less sceptical and more active in the property market.

Portuguese demographics, which have long been a problem for the Portuguese economy (public finances being saturated and social security becoming unbearable), have finally begun to reverse, due to a large wave of immigration to Portugal. The country is still seen as a country that offers opportunities and is welcoming to immigrants. With an economy almost exclusively based on consumption and tourism (which has a strong need for seasonal labour), the arrival of this wave of immigrants was a key driver, seen by investors as the certainty that there would be no shortage of labour to bring their investments to fruition, particularly in the hotel and restaurant sector.

The injection of European funds into the Portuguese economy, combined with a sustained upward trend in exports and a robust performance in the tourism sector (with peak season occupancy rates close to 100%), have made a major contribution to strengthening the Portuguese economy.

The investment market proved to be buoyant and resilient, led this time by the retail sector, followed by the hospitality sector, which attracted interest from both domestic and cross-border investors.

The industrial market was a very interesting surprise in 2024, with a take up of almost 203,000 square metres in this sector, compared to 21,000 square metres in 2023. This can be seen as another good economic sign that the Portuguese economy is renewing and modernising somewhat.

The residential market, characterised by a structural shortage of supply and excessive demand (particularly in Lisbon and Porto), has seen an increase in housing sales, despite the continuing rise in house prices and the ongoing shortage of housing supply. This shortage of supply, although severe for the Portuguese middle class, is an important certainty for investors that residential property prices in Portugal will remain strong, with very little room for any downturn. As usual, the luxury property segment has continued its usual positive trajectory. Properties in the Algarve region, with prices rising by almost 11% in 2024, are part of this trend; an impressive figure compared with all other peripheral regions of Portugal.

To tackle the current housing crisis, the Portuguese government, which had approved the “Mais Habitação” programme in 2023, approved the “Construir Portugal” plan in 2024, aiming to attract more investment to the housing sector. Among the most relevant measures are the reduction of VAT for construction and renovation, the revocation of parts of the lease law that penalise the rental market, the revocation of parts of the local lodging law that penalise the local lodging market, the simplification of licensing processes, the availability of public properties on the market, the amendment of the land law and the public guarantee for young people when purchasing their first house.

Interest in developing property assets continued to focus mainly on retail, residential and hotel projects.

Investors looking to diversify have turned to the new models that are forming a strong trend. The construction of senior and student accommodation has continued to gain ground due to the increase in demand, offering, at the same time, a predictable and stable source of rental income in a legal environment that is out of the constraints of the lease law. Digital economy real estate, including data centres and mobile towers, has also become a target investment sector as it gradually consolidates itself as the backbone of the new digital economy world order.

Although more dynamic in 2024, the Portuguese property market still showed some investors holding their transactions, waiting for the reduction of the price gap between buyers’ and sellers’ expectations.

Property outlook in 2025

The expectation is that 2025 will be a good year for the property sector, with sustained economic growth, favourable financing conditions and key interest-rate cuts. The price gap between buyers’ and sellers’ expectations should narrow significantly, meaning that more transactions should take place, with retail and hospitality remaining the best-performing key sub-sectors of the Portuguese property market.

One of the biggest challenges for the property market in 2025 will undoubtedly be the increasing supply of middle-class housing. House prices have soared in recent years due to a lack of housing supply, excessive demand and difficulties in accessing finance. The downward trend in interest rates and yields (which is likely to continue throughout 2025) may potentially provide some relief and breathing space for middle-class home buyers, which, combined with the implementation of the “Construir Portugal” plan, may contribute to boosting the housing market.

Sustainability, innovation and technology are expected to continue to shape the behaviour of property players in 2025, as they continually strive to meet consumer demands. Buyers are expected to increasingly favour properties that focus on sustainability and energy efficiency. Projects incorporating green practices will become the norm and attract an environmentally conscious public. Environmental certification and green technologies are key to meeting consumer expectations.

Finally, we also expect to see further integration of digital solutions, such as virtual visits, artificial intelligence and online platforms for property transactions. This transformative change should improve the overall customer experience, ensuring a more efficient, transparent and less bureaucratic journey for all parties involved in property transactions.