Portugal: A Real Estate Overview

The Portuguese Real Estate Market in 2025

Introduction

In 2025, the Portuguese economy continued to prove its resilience, maintaining its position as one of the better-performing economies in the eurozone. Portugal received significant international recognition, with both S&P and Fitch upgrading the country to an “A” rating during the year, citing resilient growth, improvements in external balance and ongoing government debt reduction. The deceleration in inflation and significant fall in interest rates have boosted investor confidence, translating into increased real estate market activity compared to 2024.

The country’s political landscape in 2025 presented some challenges, with a fragmented Parliament formed after an early election. Nevertheless, these developments have not materially reduced the investor’s appetite for business in the country, with Portugal's economical and geopolitical stability when compared to Central and Eastern European markets remaining an attractive factor for international capital.

Market overview

Based on available data, the commercial real estate investment market has shown a remarkable recovery, with investment volumes significantly exceeding those recorded in the same period of 2024. This resurgence reflects renewed investor confidence following a period of caution in 2023 and early 2024, when increased financing costs and the gap between buyer and seller expectations kept transactions on hold. With interest rates now on a downward trajectory, investors have become more active and decisive.

The investment allocation by sector has shown a more diversified profile than in 2024, when retail and hotels concentrated most capital flows. The living sector emerged as a significant driver, highlighting the growing importance of alternative asset classes such as student accommodation and senior living, which offer predictable rental income streams outside the constraints of the country’s traditional lease law.

The retail sector has maintained its prominence, with capital inflows substantially exceeding those of the previous year. Shopping centre transactions were a key driver for the sector, while Lisbon's and Oporto’s high street retail have demonstrated particularly strong dynamics, with new store openings significantly above last year's levels, also driven by the food and beverage sector. On the other hand, the sustained performance of tourism continues to drive investors’ appetite for hospitality assets, which, together with retail, were the star sectors of 2025.

The office sector seems to be recovering, with large office transactions returning to the market. As for occupancy, the market has shown mixed dynamics across Portugal's two main cities. In Lisbon, while quarterly activity has remained healthy, year-to-date space take-up has fallen below 2024's near-record levels – a decline that should be contextualised by the exceptional benchmark set rather than viewed as market weakness. The vacancy rate has decreased slightly, evidencing continued occupier demand. In Oporto, the market has experienced a similar pattern, with quarterly take-up rebounding strongly but cumulative figures remaining below 2024's exceptional performance.

The industrial and logistics sector has maintained strong fundamentals, with investment volumes registered up to 2025 Q3 substantially higher than in 2024. The space take-up has remained robust, driven by e-commerce operators and third-party logistics providers. However, according to the information available, the delay in the lack of completion of some lease agreements held back the total take-up, which is expected to grow again in 2026 to approximately 380,000 sqm, signalling an expected 5% increase. Vacancy rates remain low, evidencing the lack of quality supply, while a significant pipeline of new logistics space planned for delivery should help address this structural shortage in the country.

Residential market

Based on the data available up to 2025 Q3, the Portuguese residential market in 2025 has continued its exceptional growth trajectory, building on the record-breaking performance of 2024. The momentum has not only persisted but accelerated, driven by improved financing conditions, targeted government support measures, and solid economic fundamentals. Accordingly, 2025 is expected to conclude with a record volume of residential transactions, with total transaction value reaching approximately EUR40.4 billion.

Transaction activity has surged, with sales volumes well above those recorded in 2024. This acceleration is attributed to easier access to mortgage finance as interest rates have fallen substantially from their 2023 peaks, combined with favourable legislation designed for younger buyers. Lower inflation and reduced mortgage rates have boosted consumer confidence and fuelled demand, particularly among first-time buyers, who were previously priced out of the market.

Average residential prices have reached record highs across Portugal's urban centres, with Lisbon and Oporto leading national price appreciation. The expansion has been particularly pronounced in Oporto, rapidly narrowing the historical price gap with the capital. Meanwhile, more affordable suburbs have emerged as the fastest-growing areas, attracting domestic buyers seeking relatively more affordable solutions.

The buyer profile has shifted: domestic purchasers now dominate market activity even more strongly, following the end of the Golden Visa programme for real estate and the changes in the non-habitual resident tax regime. Foreign purchases have declined in 2025, departing from the trend of increasing international demand that characterised the country.

Despite strong sales momentum, the fundamental challenge of residential supply remains unresolved. New construction activity has increased but remains insufficient to meet rapidly escalating demand. Oporto has emerged as the main engine of construction expansion, while Lisbon has exhibited a more contained pace. The pipeline looks encouraging, with a robust increase in dwellings licensed for construction suggesting renewed developer confidence.

This creates a persistent affordability challenge for the Portuguese middle class. While wages have risen and mortgage rates have fallen, house prices have increased faster, meaning the gap between disposable income and house prices continues to widen. The real obstacle is not a lack of interest in buying, but the mismatch between what ordinary families can afford and current market prices – a barrier the market alone has not yet overcome.

The rental market has exhibited a different dynamic. While rents continue to rise, the pace of rental contracts has decelerated compared to 2024. Growth rates that were in double digits during 2023 and early 2024 moderated by late 2025, offering some relief to tenants, though rents continue to reflect the fundamental imbalance between supply and demand.

Property outlook in 2026

Portugal continues to face external headwinds tied to trade and geopolitical tensions. Nonetheless, the outlook remains optimistic, with favourable performance within the euro area expected to continue. The labour market remains strong, with employment at record highs and real wages rising, supporting household purchasing power.

The expectation is that 2026 will be a positive year for the real estate sector, in all asset classes, supported by sustained economic growth, favourable financing conditions and interest rate stability at levels the European Central Bank considers broadly neutral.

The principal challenge remains increasing middle-class housing supply. House prices have soared due to insufficient supply, excessive demand and difficulties accessing finance. The government's Construir Portugal programme, proposing tax relief to promote the residential supply (eg, reduced VAT on residential construction and income tax benefits on certain types of leases), alongside simplified licensing processes, public property availability and structured schemes to boost build to rent, should help address the structural supply deficit, both on the sale and lease markets. The downward trend in interest rates may also provide some relief for middle-class home buyers.

Emerging asset classes will continue to attract investor attention. Data centres are on track to become increasingly relevant in 2026, with a significant transaction in the region of EUR120 million expected to close during the year. Similarly, the agribusiness sector is gaining strategic importance, as Portugal's fertile regions – notably Alqueva – attract growing international interest, reinforcing the country's credentials as a hub for agricultural investment in Southern Europe.

Sustainability and technology are expected to continue shaping market behaviour in 2026 as players strive to meet evolving ESG requirements.