The Algarve as a property hotspot: How the tourism trend is influencing the market

In recent years, the Algarve has established itself as one of the most sought-after destinations in Europe. This popularity has a significant impact on the real estate market, both for investors and private buyers looking for a holiday home or permanent residence. In this blog post, we will take a closer look at the interactions between the tourism boom in the Algarve and the real estate market and highlight current trends and developments.

1. Focus on the Algarve: A traveler's paradise

The Algarve is characterized by a wide variety of attractions that make it an ideal destination. The spectacular beaches, crystal clear waters and charming coastal towns such as Lagos, Carvoeiro or Tavira are just some of the reasons why travellers return again and again. The south of Portugal is also predestined for activities such as water sports, golf or yachting.

The Algarve is also attractive all year round. Although the most popular time to travel is still summer, winter holidaymakers who want to escape the cold weather, such as tourists from Northern Europe and North America at the moment, are also finding the region more and more appealing.

This growing popularity of the Algarve as a tourist destination has led to a strong demand for accommodation options. According to an evaluation by "CaixaBank", the number of overnight stays throughout Portugal in 2023 was 77.1 million, while the number of guests was over 30 million. The number of guests is thus about twice as high as 10 years ago, which proves the enormous growth of the tourism sector. In the first quarter of 2024, for example, both the number of tourists (+7.7%) and the number of overnight stays (+7.1%) continued to increase compared to the same quarter of 2023.

2. Impact of tourism on the real estate market

2.1. Increasing demand for holiday homes

A major effect of tourism on the Algarve real estate market is the increasing demand for holiday properties. Investors and buyers from different countries are looking for properties that they can either use themselves or rent out. This demand has led to an increase in property prices in the popular coastal regions. Properties with sea views, near the beach or in the historic old town areas of the Algarve cities are particularly in demand. The lack of construction projects in Portugal continues to drive house price growth.

Overall, according to the "INE" (Instituto Nacional de Estatística), there has been an annual increase in house prices in Portugal over the last 10 years of about 8% on average. In 2022, there was the highest increase compared to the previous year with approx. 12.6%. In the first quarter of 2024, we see an increase of 7% compared to Q1 in 2023. The figures show that the more or less sharp decline in real estate prices in several countries has not reached Portugal.

2.2. Short-term rentals and their impact

The high demand for tourism has also stimulated the market for short-term rentals. Platforms such as Airbnb and Booking.com have made it much easier to rent out holiday apartments and houses directly to tourists in recent years. This type of rental offers property owners a lucrative opportunity to earn regular income.
Due to the housing shortage and rising property prices in Portugal, there were regulatory restrictions in 2023, but these are currently being relaxed again in 2024, which should open up further investment opportunities in this segment.

2.3. Influence on rental prices

The increased demand for holiday properties and short-term rentals has also driven up general rental prices in the Algarve. For investors, this offers attractive return opportunities, while locals and long-term tenants face ever-increasing rental costs.

3. Regional differences in the Algarve

The Algarve is divided into different regions, each with its own property markets and price levels. It is important to know these differences in order to better assess the respective market and its prices. You can also read our blog post "Real estate in the Algarve of Portugal: Prices and popular regions for buyers at a glance". 

4. Sustainability and energy efficiency in the real estate sector

With the growing awareness of environmental and climate issues, the topic of sustainability and energy efficiency in the real estate sector is also becoming increasingly important. There is an increasing trend towards sustainable construction in the Algarve. Many new construction projects and renovations integrate eco-friendly materials and technologies to reduce energy consumption and minimize the environmental footprint. These include the use of solar energy, efficient heating and cooling systems, and the use of recycled materials. The energy efficiency of real estate in Portugal is also promoted by legal regulations and incentive programs. Good energy design can not only reduce operating costs, but also increase the value of the property. Accordingly, property owners and investors should not ignore the current energy efficiency standards.

5. Current developments and trends

5.1. Digitalisation of the real estate market

Advancing digitalisation also brings significant advantages in the Algarve. Virtual viewings, online transactions and digital real estate platforms simplify the buying and selling process. These advances have facilitated market access and offer both investors and buyers new ways to find and acquire suitable properties. The use of artificial intelligence (AI) can be used to monitor market trends more precisely. Real estate platforms also use AI to automatically generate property proposals based on individual preferences, making the whole process much more efficient and personalized, especially for international buyers. This allows interested parties to carry out their research to a certain extent regardless of location. In the last phase, however, personal on-site inspections with a reliable partner cannot be replaced.

5.2. The trend towards working from home and co-working spaces

Together with the ongoing digitalization, the trend towards remote work has also influenced the real estate market. More and more people are looking for properties that allow them to work from the comfort of their own homes, whether as part of a "workation" or as a regular home office. This new way of working not only allows you to work flexibly within your own country, but also in different countries, which increases the demand for properties in attractive destinations such as the Algarve.

Properties that have well-equipped workspaces or so-called co-working spaces are now also in particular demand, as they meet the needs of remote workers and digital nomads and meet the changing needs of the modern working world. It is important for investors and buyers to keep an eye on these developments. Innovative concepts like these could prove to be particularly profitable.

5.3. Infrastructure development

The Algarve is continuously investing in improving its infrastructure to meet the increasing number of tourists. New transport connections, the expansion of public transport and the modernisation of leisure and recreation facilities are just some of the initiatives that will further increase the value and attractiveness of the region as well as confidence in the value and appreciation of properties. This also has a positive impact on the property market overall.

6. Recommendations for private buyers and investors

Before buying a property in the Algarve and also in principle, a thorough market analysis is essential. A detailed examination of the different regions, the price trends and the demand for holiday properties helps significantly to be able to make an informed decision. It is advisable to seek advice from a local real estate agent who has extensive knowledge of the market and can provide assistance with the selection and buying process.
If you are planning to rent out your property as a vacation rental, you should be aware of the different rental options and the changing legal requirements. Rental yields can vary, and it is important to develop a suitable strategy to market your property in the best possible way. In addition, you should also consider future developments in the region and planned infrastructure projects, as these can also have a significant impact on the value of a property. Smaller projects in the area can also have an influence. For example, a currently undeveloped plot of land in the neighbourhood could be provided with a new building in a few years' time, possibly obscuring your sea view – a scenario that you certainly want to avoid or clearly take into account.

7. Conclusion: The Algarve as a lucrative real estate market

The long-term outlook for the Algarve property market remains positive. A stable economic situation and the continued high demand for property suggest that the market will continue to flourish in the future. The increasing demand for holiday properties and the attractive yield opportunities offer numerous opportunities for both buyers and investors. Still, it's important to be aware of the challenges and do your research beforehand to get the most out of your investment. With the right strategy and support, you can take advantage of the growing popularity of the Algarve and make a successful property investment.

If you would like to find out more about the Algarve property market or buy a property, we are at your disposal. Contact us today to find out more about the best offers and investment opportunities in this dreamy region.