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Real Estate

Lisbon and Porto enter new phase of urban regeneration

Portuguese real estate is no longer just about luxury, downturn redevelopment, but entering a new phase of regeneration.

2 MIN READ March 14, 2019

Portugal’s wave of real estate activity is shifting focus from urban redevelopment towards urban regeneration, according to Hugo Santos Ferreira, executive vice-president of  Portugal’s association of real estate developers and investors - the Associação Portuguesa de Promotores e Investidores Imobiliários (APPII). “Urban redevelopment has been a huge success in Portugal - in fact, we are a case study for Spain - and that will continue,” says Ferreira. “But now we have to focus more on urban regeneration. The difference in concept is that whereas with urban redevelopment you mean buildings and work on buildings, with urban regeneration we’re talking about cities.”

Ferreira explains that the regeneration of Portugal’s cities has partly involved working on what can be done with large greenfield plots located in central Lisbon and Porto, where APPII offered its assistance. One of those plots - the Feira Popular, the empty site of an old amusement park in Entrecampos, Lisbon - was sold for €270m in December 2018 to insurance company Fidelidade (Portugal’s former state insurance company, now majority-owned by Chinese conglomerate, Fosun International Limited). The site will be redeveloped through a mixed-use scheme that includes offices and residential units. Fernando Medina, mayor of Portugal, tweeted immediately after the deal that it marked a “decisive step in solving one of the oldest problems in the city of Lisbon,” adding that the site sold for €88m more than expected, which would be channelled towards Lisbon’s affordable housing programme.

Urban regeneration, continues Ferreira, also involves creating new ‘student housing cities’, along the lines of those being developed in Porto and Lisbon by real estate investment and asset management firm Round Hill Capital: “New student housing cities are very important, because we face a lack of offer for students.”

APPII is also assisting in the enlargement of Lisbon. “Developers are no longer just focused on downtown Lisbon, and on luxury real estate, but going now to the surroundings of Lisbon and undertaking new construction, to the other side of the River Tagus or to the west,” says Ferreira. “Enlarging the city is good. So are smart cities - we are building the cities of the future.”

Redevelopment and regeneration drivers

Portugal’s urban redevelopment over the last five years has been largely driven by foreign investment, attracted by fiscal and political incentives. The latest effort to attract new foreign investors is the establishment of a SIGI regime - Portugal’s version of REITs - which came into force in the first quarter of 2019. Another driver, since 2012, has been the lifting of long-standing rent controls and lease law amendments, including the expedition of eviction processes, all designed to address a situation where rental income had failed drastically to keep up with maintenance costs and where owners found little incentive to carry out maintenance works.

Paulo Loureiro, CEO of private equity investor and development firm Louvre Capital, describes the situation in Lisbon before the city’s transformation: “In the 1990s and 2000s, Lisbon looked more like Havana in Cuba. The centre was crumbling and we had empty apartments, not because people could not afford to live in them, but because the city was highly degraded, with derelict, falling-apart buildings.” He points out that Lisbon, in the 1990s, had about 800,000 people living within its city limits. By 2010, however, there were only 500,000. “Why did they leave the city?” he asks. “Because of the poor living conditions. They went to new developments that were built outside the city limits, where they could have decent living conditions.”

Loureiro compares the population density of Lisbon today, which remains just over 500,000, to similar size cities (based on city limits) including Paris, which has more than four times as many people living in it, and Barcelona, which has three times the number. He believes that one of the opportunities in Lisbon, as redevelopment shifts to regeneration, rests on bringing people back into the city: “More and more people want to improve the quality of their life, so they want to come back to the city centres or close to their place of work.”

Luxury residential developments may have been Louvre Capital’s primary focus over the last three years, but as a result of Lisbon’s regeneration, that now is changing. “We are scaling up and expanding into mass-market residential, offices, retail, even hospitality, student living, senior living or co-working. A rising tide lifts all boats. We have to deliver in those segments: they’re all growing at the same time, simultaneously.”

The real estate market and investment opportunities in Portugal will be discussed further at Portugal GRI 2019 on 21-22 May in Lisbon. 

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