Investing in the rental market: the best areas in Lisbon and Porto

According to JLL, the residential rental yields in Lisbon are almost always above 3% and in Porto 4%.

João Rafael Chaves de Araújo Silva on Unsplash
João Rafael Chaves de Araújo Silva on Unsplash
9 June 2020, Redaction

In which areas of Lisbon and Porto is it more attractive and/or profitable for owners to put their houses up for rent? A recent study, "Investir no Mercado de Arrendamento" (Investing in the Rental Market), conducted by the real estate consultant JLL, seeks to answer these and other questions. "Housing as an investment is a trend that will gain strength in the coming years, because not only is real estate an asset of growing attractiveness due to the good return/risk ratio that it has in relation to other financial applications or investments in the stock market, but the residential segment, in particular, has shown itself to be very resilient, including in times of crisis," says Patrícia Barão, Head of Residential at JLL, in a statement. 

According to Barão, the study in question "is especially relevant at a time" when the country is preparing "to begin to absorb the impact of COVID-19. We concluded that the residential rental yields in Lisbon are almost always above 3% and in Porto 4%, in a market where supply is scarce and tends to be absorbed quickly." She continued to add that "there is room, and even the need, to improve stock both in quality and quantity. This in the face of a demand that is very active and that is diversified in its motivations and financial capacity. In general, it is a market with enormous potential for growth and income generation".

Lisbon's potential at a glance

According to the study, in the capital, houses are rented on average in less than 3 months and have returns above 3% in the vast majority of the territory. The central area of the city, which includes the parishes of Estrela, Campo de Ourique, Campolide, Avenidas Novas, Alvalade, Areeiro and Arroios, is the most attractive for owners who place their homes on the rental market. 

"The area stands out for its favorable relationship between the existing population (30% of the city's population), its monthly income (at 3,450 euros per family) and the potential return generated by the assets in these areas, above 3% (3.17%)," explains JLL.

The values of the existing rental offer range from 13 euros per square metre (m2) in the northern area to 18.5 euros per m2 in the city centre on average. 

"From the current rental supply, the average quality of houses is quite low and, with the exception of Parque das Nações, because it is a recent construction area, the rest of the city presents an offer of properties, in most cases, without lift access, without private parking, without air conditioning and with an almost always average energy classification. On top of that, Parque das Nações is effectively the area of the city with the highest amount of rental properties, situated at 25% of the existing residential offer", concludes the study.

Opportunities in Porto 

In the "Unvanquished City", the properties are also rented in less than 3 months and the average profitability is higher than in Lisbon, situated above 4% in most of the territory. The areas on the outskirts of the city such as Marginal, on the river and sea axis, as well as Lordelo do Ouro e Massarelos, Foz, Nevogilde and even Matosinhos, are the most attractive for rental investment.

The values of the existing rental offer vary between 9 euros per m2 in Paranhos and 12.5 euros per m2 in the historic area of the city and in Foz. 

"Compared to Lisbon, there is an even bigger gap in the offer, which represents only 8% of the total existing residential offer in the city. The same conclusion can be drawn with regard to the average quality of the houses on offer, and in this context Matosinhos and Leça stand out because most of their offer includes these basic criteria of the existence of a lift, private parking, air-conditioning systems and a predominance of energy classification above B-. The areas in Marginal, despite presenting both higher rents and higher absolute income potential (because they have a higher concentration of population, with higher income) are curiously the places where the offer presents weaker average characteristics", reads the communiqué released by JLL.

T2 properties take centre stage

On the demand side, T2 (2-bedroom) properties are the most sought after by the youngest tenants, those in the Millennial and Generation Z category (46% of respondents), soon followed by T1 (1-bedroom) properties (28%). It should be noted that more than 70% of these young people are only able to pay up to 600 euros of rent per month and, of these, about half only have an income of up to 450 euros per month.

There are also those who opt for the rental market not for economic reasons, but for fiscal, professional or even personality reasons, showing less interest for longer term commitments. 

This is an older and more international public, seeking mainly T2 (2-bedroom) properties at 38% and T3 (3-bedroom) properties at 27%, presenting a much higher financial capacity. About 90% of this category are also willing to consider rentals of more than 1,000 euros, although about half of them do not intend to go beyond 2,000 euros. There are, however, 15% of respondents who admit to paying rent higher than 3,000 euros per month.

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