Introduction
Over the last couple of years, Lisbon has consistently had the highest ratios of apartments used as Airbnb short-term rentals in all of Europe.
Today, over 22 thousand listings are offered on Airbnb – the pioneer in the short-term rental business - in the region of Lisbon. Of those 22 thousand properties, approx. 74% are entire apartments, and only 24% are private rooms in apartments.
While those in favour of the short-term rental platform say that the rise of short-term lettings in the most popular areas in Lisbon has caused massive investments in partially vacant properties and has had a positive impact on the overall economy. On the other hand, many argue that Airbnb fuels gentrification is pushing the vulnerable outside of the city and changing the old characteristics of neighbourhoods.
A good time to see the full force of the market is during the annual Web Summit – a major global tech conference - in Lisbon.
In 2017 for the Web Summit, over 18 thousand reservations on Airbnb over four days. It is assumed that the techies flooding the city have brought over 1.5 million EUR revenues to Airbnb hosts.
With this years' Web Summit ending on Friday, we thought it would be nice to take a closer look at Airbnb in Lisbon, why the service is so top-rated in Lisbon, how policymakers deal with the business, and the burden of gentrification, and the effect of COVID on the market.
General Airbnb Description
Airbnb was born in San Francisco in 2007 when two of the founders turned their living room into bed and breakfast. In 2008, the third co-founder joined the project, and together they launched the company's first website, airbedandbreakfast.com.
Its purpose was to offer short-living quarters and breakfast for people who couldn't book a hotel room due to the saturated market or high prices.
After multiple rejections by angel investors, the founders obtained venture and seed funding from several companies and were able to promote their website and create a functional business model, which made them arrive at 10.000 users and 2.500 listings by the end of 2009; this was also the year they shortened the name to Airbnb.
Four years after the initial idea, the firm was already present in 89 countries and had hit one million nights booked; Airbnb also won the app award at SXSW and reached a valuation of over 1 billion dollars (Unicorn) in that year.
Over the years, the home-sharing platform was involved in multiple legal battles and decided to redesign the brand in 2014 to the current brand image.
Airbnb came to Portugal in 2016. Ever since has been an enormous success, with Lisbon being the city with the highest ratio of houses per thousand inhabitants, even compared with other major European capitals.
Three years ago, the company announced its plan to go public. The IPO event took place on the 10th of December 2020 with a skyrocket debut of 112%, when the sector was struggling due to the reductions in travel consequences of the public health crisis. However, the stock has only climbed 27% until the current date, making the company stand at a 111.447 billion dollars market cap.
Airbnb in Lisbon
Airbnb arrived in Portugal in 2016, and in the second year alone, the country hosted more than 2.6 million people coming from more than 150 countries. On the other hand, 455 thousand Portuguese people travelled inside the country.
The combined revenue for Airbnb hosts was 250 million, with an average of 4.500€ per host. Both Lisbon and Porto stayed above average with revenues per host of 7.685€ and 5.743€ and a total of 1.03 million and 470 thousand visitors, respectively.
Presently, Lisbon has 16.230 listings located mainly in the historic centre and city centre and near the Tagus River, such as Parque das Nações, Alcantra, and Belém.
Airbnb gives hosts the possibility to register Entire homes/apartments, Private or Shared rooms. In the Portuguese capital, the most common room type is Entire home/apartments with a weight of 74.8% (12.142 listings) in comparison to the Private rooms that represent 23.8% (3.866 listings) and Shared rooms with only 22 listings (1.4%). The weighted average price/night is 88€, although some listings charge as much as 250€ per night.
Moreover, when considering the recently and frequently booked listings (9.776), the average price per night is 72€ and 81€ for Entire home/apartments (7.914 listings), the estimated nights booked per year are 182 (49.8%) and one more for the Entire home/apartment (50.1%).
Therefore, with the combination of this data is possible to conclude that the weighted average for all room types of the estimated income/month is 1.038€ and for Entire home/apartments 1.169€.
In addition, some hosts have several listings; in Lisbon, 69.1% of them are using the multi-listing as a business model, taking advantage of the growing tourism trend seen in the Portuguese capital in the past years, some of the significant companies own as many as 50 listings, and the top 1 has more than 90 properties registered.
Potential responses and implications
In 2019 the number of overnight stays in Lisbon had reached the baffling number of 11 million, representing roughly 20-times the resident population. However, while many countries are increasingly desperate in fighting the use of apartments as Airbnb properties, Portugal has chosen to regulate the market early too, at least seemingly, stay in control of the situation.
Starting in 2017, the Portuguese government enforced its alojamento local program, ensuring that all the properties used as short-term rentals are visible and the proceeds of those rents are taxed property. Further, in an agreement with the Portuguese tourist authority has been declared to share all information on Airbnb hosts to ensure the detection of illegal flats and tax evasion.
Also, those first pragmatic steps offered renters a more significant degree of security when renting a flat on the platform. Starting in November 2018, the countries embracing attitude has changed noticeably, with the municipality of Lisbon prohibiting the registration of new properties in specific historic neighbourhoods in Lisbon. Also, the hefty fines for renting a property illegally have steadily increased ever since the initial introduction in 2017.
This thesis is supported by the many papers outlining in great detail the consequences of gentrification. The former mayor of Lisbon, Fernando Medina, has openly admitted that during the COVID pandemic:
The assumption that gentrification is ongoing is also supported by a decreasing population in many historic districts, potentially resulting from a displacement of inhabitants for the creation of Airbnbs – which assuming an average occupancy of 50%, are further hollowing out communities and districts.
Nonetheless, despite these developments already back in 2016, the socialist has vouched against too strict regulation stating that:
Since this statement, a lot has changed. Most importantly, Fernando Medina has been replaced by Carlos Moeda, and the COVID-19 pandemic has hit the travel industry and the Portuguese economy with full force.
The effect of the pandemic on the short-term rental market can almost not be overstated, illustrated by the number of listings in Lisbon having decreased by 35% as of March 2021 and currently standing approximately 15% lower than pre-pandemic levels.
Accordingly, studies have shown that the decrease in listings goes hand in hand with a significant decrease in recorded transactions and purchase prices, with the highest effect on T2 apartments. According to data from Reuters, rental prices have also decreased by 15% as of March 2021. They have still not fully recovered, according to the most recent data of the Instituto National de Estatística.
During the pandemic, the local governments have tried to incentivize owners to transform their rentals into social-housing units offering 5-year rental contracts and tax incentives; however, this has not brought the success the government was hoping for in Lisbon for with less than 100 Airbnb hosts taking up the offer. In addition, only a small number of holders of an alojamento local license decided to stop renting out their properties as short-term rentals retire their licenses.
From a regulatory point of view, we expect the future policy responses to be more liberal. As outlined above, Lisbon has recently elected Carlos Moedas, a democrat and former EU commissioner for innovation, as its new major.
Since 2016 Moedas has repeatedly said that he is a big fan of startups shaping the new daily life in Lisbon, such as Uber and Airbnb. Although some market experts estimate the local Airbnb market size to decrease by 15%, we have a more positive outlook based on the small amount of returned licenses and the increase in listings between March 2021 and today.
Conclusion
In conclusion, we can say that we are sure that the Airbnb business in Portugal is not gone for good. Fuelled by the economic growth of the last decade, record highs in overnight stays and policies we have discussed in the past, such as the "Golden Visa", Lisbon and its neighbourhood have seen incredible amounts of change.
As described, Portugal has found its way to handle the Airbnb industry earlier than other cities and has implemented measures proactively. Despite the economic benefits, there have been adverse effects without any doubt. For the future, those effects have to be weighed up carefully to preserve the liveability of the city of Lisbon.
Further, we believe that the city of Lisbon, led by the new mayor Carlos Moedas who also spent part of his career as CEO of Savills Aguirre Newman, a leading Real Estate service provider, will remain a liberal place for Airbnb to conduct its business.
AUTHORS
Francisco Rei
Friedrich Bücker
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