Lisbon Neighborhoods for Real Estate Investors (Alfama to Estrela)

If you are an outside investor considering the purchase of real estate in Lisbon, the topic can appear, at first glance, straightforward. Each page appears to contain the same beautiful pastel- colored façades, with terracotta roofs lining boulder-strewn streets. However, many will attest to the fact that, within a thirty-minute walk in any direction, you will encounter between 7 to 10 entirely separate markets. While the issues are the same, each has its unique landscape, investing yield, pool of potential buyers, and overall risk profile.

The guide starts in the medieval Alfama hills and ends in the modern Estrela greens. This is a guide about the real things that investors look at, as opposed to the fancy marketing fluff of real estate promo materials.

Why neighborhood-level matters more than city-level

Average sale price of real-estate in Lisbon is approximately €3,300 per m². Although prices do vary fairly considerably between different areas and properties, prime central locations can easily reach above €6,000 per m² and in some cases even higher. This means that a property with an entry price of €420,000 for 127 sqm in a less central parish, could easily offer an entry point of €1,800,000 for a similar sized property in a central location; a difference of 50%. However, what many potential property buyers are unaware of is the large disparity in the gross rental yields which these properties offer. While the average gross rental yield throughout the city ranges between 3% and 3.5%, in some of the most desirable locations this figure dips below 3% while in up-and-coming locations it easily exceeds 4.5%.

Alfama: heritage rental, capped supply

The oldest quarter of Lisbon, known for its narrow streets, fado bars and stunning sea views. The supply of real estate is limited as most of the buildings are protected and any renovation has to be carried out carefully with the relevant permits.

For investors, Alfama is short-stay-rental territory, with high demand from tourists, average occupancy rates above 75%, and average price per square metre for renovated properties ranging between €5,500 and €7,500. For owners, it can be a very rewarding investment but also a lot of work, as long as it is run properly. Ultimately, it can also be a very negative investment for those who only look to make money passively.

There have been some updates from Lisbon’s local authority on the licensing for short-term holiday lets in certain parishes. It may be worth double checking that any AL (Alojamento Local) licence is transferable before making a purchase as a property which is non licensed will have little residual value to a yield driven buyer.

Mouraria: the value play with character

The district of Mouraria, some five minutes north of Lisbon’s oldest quarter of Alfama, has been under the microscope for about the past five years as a transition area, equally multicultural and pedestrian-friendly. While its investment appeal has lost some steam in recent years — prices for freshly renovated apartments have tumbled to the €4,000 to €5,200 per square metre — it still draws interest from investors who have missed the boat on Alfama.

It’s the same hill. The same metro stop. A 12 minute walk to the river. And yet the potential for a renovation varies wildly. When a realtor describes a property as “renovated” in this type of housing stock you have no idea what you are getting. The difference between a full on rebuild, and a new coat of paint around exposed 100 year old wiring could mean life or death. Make sure you are inspecting every nook and cranny, and make sure you verify the alvará (use license) is current before making a purchase.

Príncipe Real and Chiado: the trophy market

It’s in Príncipe Real and Chiado that you find most of the international capital. It’s a scene of boutique buildings with value placed on small, luxurious interiors, designer ground floor shops and quiet luxury with little self-promotion. The entry price to the market is around €7,000-€9,000 per sqm and then the price increases due to factors such as view, ceiling height and floor.

Given that yields on the property are down to around 2.5-3% gross per annum, this is not a vehicle for optimizing for yield. More so, this is not for the seller-occupier optimizing for location. Instead, this is ideal for the relocating professional, the second-home buyer or the Golden Visa investor utilizing the €500,000 fund. Optimizing for liquidity in a potential downturn is key.

Estrela and Lapa: the quiet performer

The area of Estrela and Lapa is quite a calm and quiet one, surrounded by a lot of green space, a long way from the busy areas of the center of Lisbon. This part of town is where many embassies are located as well as the big Estrela basilica and the beautiful botanical gardens, Jardim da Estrela. Properties here are generally a bit bigger and have deeper floor plates. Prime real estate comes at a price around €5,500-€7,000/m².

The target buyer will be a family or long term investor that will obtain small rental yields around 3-3.5%. However, yields are consistent and tenant voids are very rare. From our research, this location and style of property is the best way to gain a Lisbon investment without too much day to day hassle. Of the local agents we have consulted, Estrela is the most highly recommended address.

Marvila and Beato: the future-curve districts

Neighbouring areas Marvila and Beato sit east of the centre of Lisbon, in what used to be a hub for industry, with recent regeneration turning the area into home to tech start-ups, microbreweries and art spaces. Prices in the areas within the city boundaries are lowest, starting at €2,800-€3,800 per square metre for new buildings and even less for older property.

Infra spend, increasing employment density and a young rental demographic continues to drive Rents above Real Estate values, compressing pay back periods handsomely. Yields easily sit at 4.4.5%+ gross. Clearly a transition story and one where the thesis (continued infra spend) inherently carries significant political and macro risk but can be sized accordingly.

Alvalade and Avenidas Novas: the local-market pillar

To test the Portuguese tenant hypothesis, a more residential neighbourhood may be more suitable than the tourist-hotspots and expat ghettos. Starting in Alvalade and Avenidas Novas is therefore sensible enough, with a grid of wide avenues, mid-century buildings, plenty of metro stops, and fair prices to boot (€4,000-€5,500 per m²).

Yields here are offered at the high end of the range of 3.5-4%. It is mostly professional families and middle-class Portuguese that occupy these properties. As this part of town is not a major tourist hot spot, lease terms are longer. This is not the most exciting investment, but experienced investors want to weight their Lisbon portfolios with some “boring” allocations like this.

Building a Lisbon allocation

I notice that most of our seasoned, experienced investors don’t put all their eggs in one basket by buying solely in one neighbourhood. Instead they mix and match and create a basket of properties comprised of short-stay rentals in an up-and-coming part of the city (let’s say Alfama or Mouraria), a few long-term rentals in more established, affluent areas (Alvalade or Estrela), and then sometimes a piece of raw land or property in Marvila in order to cash in on the increased value of the city’s southeastern neighborhoods. This approach helps to reduce risk by smoothing cash flow and diffusing the risk of regulatory changes in any one rental category.

For the buying of a single property, one should anchor on the real holding period. If intentions are to hold for under five years, then the key criteria should be liquidity, and hence Príncipe Real and Chiado may command a premium. Between 5-10 years, the weighting to yield consistency is higher, pointing to Estrela and Alvalade as the better bet. Holding for 10+ years offers the potential to take on significant risk in terms of the development curve in areas such as Marvila and Beato.

A note on the Golden Visa, residency, and citizenship

There is no real-estate option for the Golden Visa in Portugal anymore, dropped in October 2023. Five options are currently available, including a €250,000 cultural donation, an investment of €500,000 through an CMVM-regulated investment fund (the most common route right now), an active Portuguese business with a minimum capital of €500,000 and creation of 5 jobs, scientific R&D activities for the same amount, and the option with no minimum capital required to create jobs. AIMA processing time for the first residence permit is currently around 12-24 months.

Residency to obtain citizenship has been increased to 10 years, until 2026, for all nationalities (previously 5 years). Currently, nationals from the EU and the CPLP need to reside in Portugal for 7 years to apply for citizenship. Meanwhile, the standard Golden Visa residency requirement to apply for a permanent residency remains 5 years. A long-term move to Portugal now is a 10-year affair, not a 5-year one.

For the most up-to-date information please see our Golden Visa guide however this post will outline the necessary criteria for applicants and provide a brief overview of each route. In our guide we compare the requirements of each option with reference to the investment required, processing time and common mistakes to expect.

The bottom line

You have to read Lisbon neighborhood by neighborhood to understand investing opportunities. For the yield-orientated short-stay rental operator, a given area may represent very good value, while for the family capital looking to preserve its investment, even a rather high lease rate may be too expensive. So you have to read Lisbon like you read an investment sector, by sub-segments, not by overall index performance.

Let the length of your holding period and your level of desire for active management set the "neighborhood".