Tourism in Portugal is bouncing back from the COVID-induced lull and has been outperforming previous records. A recent study by Global Asset Solutions found that Portugal welcomed 30 million tourists in 2023, up from over 28.4 million tourists in 2022. The rise of tourists in 2022 generated nearly 70 million of overnight stays, fueling both the economy and the tourism sector’s contribution to the GDP.
This resurgence in tourism has significantly powered the country’s hotel market, with overnight stays returning to pre-pandemic levels (99% of 2019) in 2022, the study said. RevPAR surpassed 2019 figures, reaching €50 ($54) in 2022 and €56 ($61.14) in 2023, indicating growth of around 14%. This impressive recovery continued in 2023, with year-to-July RevPAR rising by an additional 22.3% to touch €60.6 ($66.17).
The country’s cultural heritage, natural landscapes and well-known tourist destinations have been attracting tourists, making it a competitive tourism market in Europe.
Portugal has more than 113,000 rooms mostly in the 3-star category, the study found. The industry is gradually leaning towards luxury hotels, while lower-rated accommodations are shrinking. This shift is driven by the repositioning of existing hotels and debuts of luxury hotels, such as W Algarve and W Residences Algarve. This also highlights the interest of international investors and brands in the market.
The country’s hospitality market will continue to appeal investors, with more than 11,000 rooms in different stages of construction or planning. This indicates the changing landscape, with supply swelling by 14.8% in the Lisbon region including over 4,600 rooms under construction or in the planning stage.
MARKET STRUCTURE
The Portuguese tourism industry can be divided in seven regions — Norte, Centro, Lisbon, Alentejo, Algarve, Madeira and Azores. The three primary regions — Norte, Lisbon and Algarve — represent 70% of the country’s overall overnight stays and have the greatest RevPAR, although Madeira has robust RevPAR compared to Norte.
Brand presence expansion has been increasing, with branded hotel rooms constituting more than 50% across the country.
INVESTMENTS & TRANSANCTIONS
Hotel investment has witnessed a considerable resurgence after the pandemic. The total volume of deals in 2022 surpassed the record numbers of 2019 to stand at €1.2 billion ($1.31 billion), which was double the amount from three years ago.
The fourth quarter of 2022 particularly recorded the highest quarterly sales volume ever, totaling nearly €900 billion ($982.74 billion). Quarterly sales in Q2 2023 surged more than 60% YOY, totaling €273.7 million ($298.86 million).
Hotel deals are increasingly leaning towards portfolio deals, the report found, adding that these deals are expanding beyond Lisbon and into Madeira and other regions.
The wave of investment has been a key source of funding for the country’s overall hotel sector. In 2022, cross-border investment in Portugal’s hotels peaked at €188.5 million ($205.83 million), which was then surpassed in the first seven months of 2023.
In January 2023, Davidson Kempner and Highgate, along with Kronos from Madrid, completed the biggest acquisition of the year, taking more than 18 hotels in Portugal. At the same time, HG Portugal launched its collection of these 18 hotels located across Algarve, Lisbon, Porto and other markets. The hotel portfolio comprised properties under the Hilton and IHG brands, as well as independent hotels. The portfolio includes lifestyle boutique hotels, urban full-service hotels, waterfront luxury resorts and large convention centers.
PIPELINE
Room supply is expected to grow across all seven regions, though most of this growth will be in Lisbon, Norte and Algarve.
Lisbon is projected to see the highest growth of new rooms, with the addition of 4,635 units accounting for a 14.8% rise from its 2023 stock.
Some 73% of the rooms in the overall pipeline will be branded, with Accor and Meliá commanding the majority at 9.2% and 8%, respectively.
More than one-third of the new supply will be in the upscale category, predominantly in the Lisbon region. However, only 5% of the new supply will be in the luxury segment.
LISBON’S POTENTIAL
Lisbon is capable of absorbing increased supply without detrimental effects on demand. The luxury retail segment in the city also continues to see positive demand absorption, even as new supply enters the market.
In 2022, the city constituted for slightly more than 20% of overnight stays in Portugal. The Lisbon region contributes 27.5% of the country’s total room supply, making it the nation’s biggest hotel room provider. Despite a 10.8% increase in hotel room stock, the region’s supply mix has not seen much changes, with the 3-star segment commanding a 23% share and the 4-star category continuing to dominate with a 46% share of rooms.
Most of the region’s supply is concentrated in Lisbon, which hosts over 80% of the rooms. The next few years will see the region recording the largest growth in room supply, with around 4,600 rooms in the pipeline, of which 73.2% is already under construction.
Price growth in Lisbon’s rental market has been steadily rising over the last 18 months. Rents have jumped by more than 40%, pushed by an increase in international tenants looking for prime residences.
