Portugal Hotel Market Outlook 2024
- GAS
- Jul 12, 2024
- 6 min read
Updated: Mar 21
Portugal's hospitality industry is experiencing an impressive comeback post Covid, surpassing previous records. The unprecedented challenges brought about by the global pandemic have marked a clear shift in all industries, creating a noticeable divide between the ‘before’ and ‘after,’ especially for Portugal’s hospitality industry.
In 2022, more than 28.4 million tourists traveled to Portugal (30 million in 2023), generating almost 70 million of overnight stays; significantly boosting both the economy and the tourism sector’s overall contribution to GDP, which accounts for nearly 16% (the third highest share of UE GDP). The strength of the tourism sector has notably driven the Portuguese hotel market, with overnight stays in 2022 returning to pre-pandemic levels (99% of 2019). The Revenue per Available Room (RevPAR) comfortably exceeded 2019 figures, reaching €50 (€56 in 2023), indicating a strong growth of around 14%. This impressive recovery continued in 2023, with year-to-July RevPAR increasing by an additional 22.3%, reaching €60.6.
Thanks to its rich cultural heritage, stunning natural landscapes, and famous tourist destinations, Portugal has become a highly competitive tourism market in Europe.
Portugal currently provides more than 113,000 rooms, mainly in the 3-star category. The trend in the industry is shifting towards an increase in 4 and 5-star rooms, while lower-rated accommodations are decreasing. This change is driven by the repositioning of existing establishments and the introduction of luxury hotels like the W Algarve and W Residences Algarve, demonstrating the interest of international investors and brands in the Portuguese market.
Looking forward, the country’s hospitality sector shows promise, with over 11,000 rooms in different stages of construction or planning. This significant number reflects the changing landscape, with the Lisbon region experiencing a 14.8% growth in its supply, including over 4,600 rooms under construction or in the planning phase2. The market has shown capacity to absorb increased supply without detrimental effects on demand. The luxury retail segment in Lisbon continues to experience positive demand absorption even as new supply enters the market.
Portugal Market structure
Regions’ contribution to country ADR and stays2:
Portugal’s tourism industry can be divided into 7 seven regions: Norte, Centro, Lisbon, Alentejo, Algarve, Madeira and Azores.
The three main regions (Norte, Lisbon, and Algarve) account for 70% of the country’s overnight stays and have the highest RevPAR (although Madeira has a stronger RevPAR than Norte).
Brand presence expansion is on the rise, as branded hotel rooms make up over 50% in Portugal.
Hotel Investment and Main Transactions
Hotel investment in Portugal has experienced a significant resurgence following the slowdown caused by the Covid pandemic. The total volume of transactions for 2022 exceeded the previous record set in 2019, reaching a total of €1.2 billion, which is double the amount from three years prior. In addition, Q4 of 2022 witnessed the highest quarterly sales volume ever, totaling almost €900 billion. Moreover, Q2 of 2023 saw a quarterly sales volume increase of over 60 percent year-on-year, amounting to a total of €273.7 million. It is worth noting that hotel transactions are increasingly taking the form of portfolio deals and are expanding beyond the capital city, including properties in Madeira and other parts of the country.
The influx of investment has become a crucial source of funding for Portugal’s hotel sector. Cross-border investment in the country’s hotels reached a record high of €188.5 million in 2022, a figure that has already been surpassed in the first seven months of 2023, with net incoming investment totaling almost €262 million.
Portugal’s hotel sector is expected to grow, driven by the country’s ample co-working spaces, pleasant climate, cost-effective living expenses, and convenient air links to key European cities.
On January 4, 2023, Davidson Kempner and Highgate, based in New York, together with Kronos from Madrid, completed the largest acquisition of the year, taking over 18 hotels in Portugal. At the same time, HG Portugal introduced its collection of these 18 hotels located across the Algarve, Lisbon, Porto, and various other markets in the country. This transaction occurred as Highgate, Davidson Kempner Capital Manager, and Kronos took over the Portuguese investment manager ECS Capital. The hotel portfolio consists of properties under the Hilton and IHG brands, as well as independent hotels like Cascade Resort, Salgados Palace, and Sao Rafael Atlantico. In addition, the portfolio includes lifestyle boutique hotels, urban full-service hotels, waterfront luxury resorts, and large convention facilities4.
Lisbon in the spotlight for international investors: rental market on the rise.
In July in Portugal, a delegation of 19 international investors is scheduled to participate in approximately 100 meetings with 20 companies listed on the Lisbon stock market as part of Capital Market Day 2024. During this groundbreaking event, 40 investors, including 19 from overseas, will engage in direct discussions with Portuguese company executives to delve into their business operations, strategies, and future plans.
Isabel Ucha, the president of Euronext Lisbon, also warmly received the recent approval in parliament of a series of tax incentives designed to boost Portugal’s capital market, with support from the major political parties.
"This agreement makes us believe that things are moving forward. The government recently took the initiative to introduce tax benefits both in terms of asset-based investors and in relation to market access costs that companies will be able to offset against their taxes and that we naturally see as a good thing and going in the right direction. However, it could have gone further, especially on the side of the investors; but clearly good news, all the same.”5
The rental market in Lisbon has experienced substantial price growth in the last 18 months, with rents rising by more than 40% due to an increase in international tenants seeking prime residences.
Six-month rental value change
Hotel Pipeline
Portugal is set to see a significant increase in room supply, with a total of 11,245 rooms expected to be added across the seven regions. However, most of this growth is concentrated in three regions: Lisbon, Norte, and Algarve.
The Lisbon Region is projected to experience the largest influx of new rooms, with 4,635 units expected to be added, representing a 14.8% increase from its 2023 stock.
Out of the rooms in the active pipeline, 73.0% will be branded, with Accor and Meliá accounting for the majority at 9.2% and 8.0%, respectively.
Over a third of the new supply will fall into the Upscale category, primarily located in the Lisbon Region. However, only 5.0% of the new supply will be in the luxury segment.
Pipeline figures (Number of rooms and % of supply increase)
Lisbon hotel market structure
Lisbon accounted for slightly more than 20% of overnight stays in Portugal in 2022.
The Lisbon Region contributes 27.5% of the total room supply in the country, making it the largest hotel room provider nationwide. Despite a 10.8% increase in hotel room stock, the region’s supply mix has seen minimal changes, with the 3-star segment holding a 23% share and the 4-star category still dominating with a 46% share of rooms. Most of the region’s supply is concentrated in Lisbon, which hosts more than 80% of the rooms. The region is expected to see the largest growth in room supply in the upcoming years, with approximately 4,600 rooms in the pipeline, 73.2% of which are already being constructed.
Feeder markets And Hotel supply evolution
Despite a decrease in occupancy, RevPAR in 2022 soared to €80.3, marking its highest point since 2018 and surpassing the national average in Portugal (€ 56.2) by a significant 42.8%.
Financial performance
The RevPAR performance in YTD July 2023 reaffirms Lisbon as the leading region in the country, boasting a RevPAR of €91.3. It is worth noting, however, that this 27.9% increase in RevPAR compared to YTD 2019 was primarily driven by a 33.0% surge in ADR, while occupancy remained 5.7 percentage points below the pre-Covid peak of 2019.
The return to 2019 occupancy levels may have been temporarily impeded by the substantial growth in the supply of approximately 3,000 rooms since 2019, representing a 10.8% expansion2.
New Openings in Lisbon
Andaz Lisbon is expected to open by 2024 and will consist of five separate buildings, including the former offices of one of Portugal’s main banks. The hotel’s central building will feature 169 rooms. This Andaz brand hotel results from an agreement with Feuring Hotel Lisbon GmbH & Co. KG.
ME by Meliá Lisbon: This luxury hotel will be located near Eduardo VII Park and Marquês de Pombal Square. It will feature 213 rooms, a rooftop bar, and a focus on contemporary architecture and interior design inspired by Lisbon’s local culture.
Six Senses Lisbon: The new investment project will convert the 17th-century Palácio Lavra and adjacent Palácio de Pedrosas into a 114-room property.
Kimpton Lisbon: The hotel, expected to open in early 2025 under a franchise agreement with Real Hotel Group, will embody the essence of the Kimpton brand. It will feature 141 guestrooms and public spaces. Situated in the center of Lisbon, the hotel is conveniently close to Eduardo VII Park, Marquês de Pombal Square, and Avenida Liberdade, all within walking distance.
Looking forward to the future
The Tourism of Portugal entity published a report on their Tourism Strategy 2027, revealing that the country’s current performance has exceeded the expectations set when the strategic plan was initially released (2021).
Their initial expectation was a 4.2% average annual rate, but with the consolidated results achieved in 2022 (69.7 million overnight stays), Portugal is approaching the high-tier growth forecast of 6.1% AAVR. The 2022 actual overnight stays averaged a 5.2% annual average rate. (18 million were from the Lisbon Area, representing 26% of the total).
Nuno Fazenda, the Secretary of State for Tourism, Trade, and Services: “2023 was indeed a very positive year for the country’s tourism, and also for Portugal as a whole, a record-breaking year, the best year in the history of tourism in Portugal. Portugal’s tourism will experience further growth in 2024”.
