Portugal's rental market remains dynamic; up by 9.4%

The rental market in Portugal remains dynamic at a time when buying a house is more expensive, not only due to high prices but also due to the high costs of financing. In the beginning of 2023, 24,300 new rental contracts were signed in Portugal, the second-highest number recorded since 2020. As demand continues to surpass supply, house rents have once again increased, with a year-on-year increase of 9.4%, reaching a median value of 6.74 euros per square meter (euros/m2) in the first quarter of 2023. This is the second-highest rental value recorded since 2020, although it has decreased by 2.5% compared to the previous quarter. In this context, the costs of house rents are weighing more and more on families' budgets.

Provisional data from the National Institute of Statistics (INE) reveal that in the first quarter of 2023, "the median rent of the 24,300 new rental contracts in Portugal reached 6.74 euros/m2," a value that represents a year-on-year growth of +9.4%, "although it is lower than the year-on-year variation recorded in the fourth quarter of 2022 (+10.6%)," as explained in the bulletin published on Tuesday, June 27.

However, this was not the highest median rent value recorded in recent years (since 2020). The highest value was observed in the last quarter of 2022, when it reached 6.91 euros/m2, so compared to this period, house rents at the beginning of 2023 decreased by 2.5%. As for the number of new rental contracts, it is observed that the 24,300 documents signed in the first three months of 2023 constitute the second-highest number since 2020, only surpassed by the first quarter of 2022 (24,727 contracts, 427 more than at the beginning of this year). Therefore, compared to the previous quarter, there was an increase in new rental contracts of +7.4% (+1,672 contracts in absolute terms).

Fig 1: Median house rental value per m2 of new lease agreements of dwellings, Portugal and NUTS 3, 4thQ 2022 and 1stQ 2023 Fig 2: Median house rental value per m2 of new lease agreements of dwellings, Portugal and NUTS 3, 1stQ 2023 Source: National Institute of Statistics (INE)

It was also observed that 15 out of the 25 sub-regions of the country recorded an increase in the number of new rental contracts compared to the same period last year, with notable increases in the Alto Alentejo (+20.1%), Douro (+19.2%), and Alto Tâmega (+16.2%). Unsurprisingly, the metropolitan areas of Lisbon and Porto accounted for 49.4% of the new rental contracts (49.7% in the fourth quarter of 2022).

More houses are being rented out at increasingly higher prices, which means that the burden of rents on household incomes is growing in Portugal. This is confirmed by Eurostat: in 2022, about 29.4% of households renting a house in Portugal had a burden rate higher than 40% (in 2010, only 17.9% of tenants were in this situation), as cited by Público. This reality places Portugal among the European Union countries where families have to make a greater effort to rent a house. And with the recent rent increases in 2023, this burden rate is expected to increase even further.

Rents increased in all sub-regions of the country Compared to the first quarter of 2022, the median rent increased in all sub-regions, with four of them having values higher than the national average (6.74 euros/m2) and also higher year-on-year growth than the country's average (9.4%). Conversely, Lisbon Metropolitan Area presented a median value of 10.26 euros/m2 and a year-on-year growth of 12.6%.

Overall, the rental market in Portugal presents a mixed picture of opportunity and financial pressure. As rental prices increase, it becomes crucial for policymakers and stakeholders to address the affordability issue and ensure sustainable solutions that balance the needs of both landlords and tenants.

Disclaimer: The views expressed above are based on industry reports and related news stories and are for informational purposes only . SSIL does not guarantee the accuracy, legality, completeness, reliability of the information and or for that of subsequent links and shall not be held responsible for any action taken based on the published information.