Lisbon s Tourist Apartments

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1 Lisbon s Tourist Apartments A growing market May 2015

2 Lisbon s Tourist Apartments A growing market May 2015 What is a tourist apartment? This can be a difficult question to answer considering the high number and different types of independent short-term let accommodation offer in Lisbon. Tourist apartments, serviced apartments and local lodging are relatively recent products in the hospitality industry. However, it has gained popularity in recent years, representing a significant competitor for conventional hotels. Mainly for vacations and city-break, the local lodging often offer a more central location, a very local, authentic and informal stay, providing the possibility of accommodating the whole family or groups of friends, at affordable prices. The local lodging apartments can be individual or included in a full dedicated building, and can be managed by an operator or by its owner. On the other hand, for corporate visitors and expatriates temporary or permanent, serviced apartments have also became an alternative to hotels. These apartments are usually operated by hotel chains, with touristic classification as HA Hotel Apartamentos. Lisbon... What else? There are no doubts about the popularity of Portugal these days, and Lisbon is in the limelight of global tourism. It is easy to understand the reasons behind the popularity of Lisbon and what makes it so special. History, tradition, modernity, beauty, beaches, climate, cuisine and charm, make the portuguese capital a unique destination in Europe, and at a very decent and affordable prices. According with a survey made by Lisbon Tourism in 2013, more than a half of the surveyed tourist claimed that the trip to Lisbon exceeded its expectations and include Lisbon in the top 5 of recommended cities. This satisfaction is confirmed by the several international distinctions that the city has recently received: According to BBC Travel, Lisbon is among the Top Five cities in the world where you can live large, for a little. Lisbon was also chosen as Europe s Leading City Break Destination by the World Travel Awards and by the Amadeus & WTM Travel Experience Awards; and also reached the 9 th place in the world ranking of cities chosen to host international meetings and conferences, produced by the ICCA (International Congress & Convention Association). In addition to the awards, Portuguese government has invested a lot in tourism in the last few years, and familiar faces like Cristiano Ronaldo, José Mourinho and Sara Sampaio also brand Portugal wherever they go, giving more visibility to the country. Weatherwise Magazine considers Lisbon as the 6 th city with the best climate, making it one of the most comfortable major cities in the world. Lisbon is also the European capital with more hours of sunlight per day 2

3 Lisbon s Tourist Apartments A growing market May 2015 Lisbon Tourism A Brief Outlook Lisbon tourism indexes have raised in the last decade, and this upward trend is now even more evident. According with ANA Airport, the Lisbon airport recorded a growth of more than 65% in passengers during the last 10 years. In 2013, 16 million passengers passed through this airport, up by 4.6% compared with In 2014, the number of passengers increased to 18 millions, which represents an Y-o-Y growth of 13.3%. At the same time the number of direct destinations has also increased and Lisbon is currently linked to a more than 120 destinations. Low cost carriers are a trend more and more present, being part of the strategy of many companies. In 2014, more than 20% of Lisbon Airport passengers were low cost passengers. Ryanair, that opened its base at Lisbon Airport in 2013, carried more than a million passengers in 2014 and currently counts with 17 routs from Lisbon. Regarding cruise ship passengers, after an increase of 7% between 2012 and 2013, the number of passengers in Lisbon port reduced 10% in However, it is expected the growth return. In the first three months of 2015 the number of passengers has already grown 20% Y-o-Y and the completion of the new check in/ check out cruise terminal will extend the capacity of cruises parking, which will allow the growing trend, both in tourists and overnights. Despite the decrease recorded in 2008 and 2009, the number of hospitality guests in Lisbon increased by 50% over the last 10 years. From 2012 to 2013 the number of guests increased 4.6% and in 2014, with a total of 3.6 millions, the growth reached 14,5%, when compared to Were registered 8.4 millions of overnights in Lisbon during 2014, which represents a 16% Y-o-Y growth. This was the indicator with the greatest growth, continuing the increase of 7% already registered in The market share from Angola, Russia and China is still quite low. However, forecasts indicate that exponential growth of this countries middle class will undoubtedly have a positive impact on Portuguese tourism. According to the Motivational Survey made by Lisbon Tourism in 2013, 69.5% of the foreigners tourists visit Portugal in leisure traveling, that usually mean longer stays, compared to about 19% that visited Portugal in business trips. In terms of average day expenses, the US visitors are on top, with an average of 141 per day (excluding transport and accommodation). Passengers 122 direct destinations from Lisbon Airport, 16 more than Lisbon-Bogotá- Panamá is one of new routes. Source: ANA; Porto de Lisboa Hospitality Guests (Lisbon City 2014) Source: INE Foreigners Overnight Origins (Lisbon City ) Cruise ship passengers who stop over in Lisbon place the capital on the top 10 destinations to visit. Room Nights (Lisbon City 2014) 80% are foreigners, representing an increase of 15%. Note: These are not all the nationalities of tourists visiting Lisbon Source: INE 3

4 Rooms Lisbon s Tourist Apartments A growing market May 2015 In terms of operational indicators, Occupancy Rate in Lisbon city in 2013 was 67%, which represents an annual increase of 2.3%. In 2014 this indicator reached 73%, which represents an Y-o-Y growth of 8.8%. The Average Daily Rate in 2013 was 74.65, 4% higher than in 2012 and in 2014 this value increased to 78.31, growing about 5%. In result to this tendency, the RevPar also increased. The revenue per available room in 2014 fixed on 57,94, which represents a 14.1% growth when compared to 2013, showing the performance improvements of this market. Overall, the performance of this industry is clearly increasing, boosted by the high demand registered, which is also confirmed by the relevant increase in all touristic indicators. On the supply side, the increasing trend remains and the supply of rooms increased about 40% in the last decade. In 2014, with about 500 rooms more in the Lisbon hotel market, the supply totalized approximately 17,600 rooms. The majority of room supply is within the 4-star category and is very concentrated in the CBD of Lisbon, like Avenida da Liberdade and Avenida da República and its surroundings. In the historic centre of Lisbon the supply is still reduced. In terms of pipeline, it is expected the development of more than 20 new hotel units in Lisbon, totalizing an increase of more than 2,000 bedrooms between 2015 and This new supply is mainly in 4 and 5-star categories, some in the historic centre like Baixa, but the majority in Avenidas-axis. Evolution of Hotel Rooms Supply Source: INE Occupancy (Lisbon City 2014) 5 star 4 star 3 star 2 star Source: Observatório do Turismo de Lisboa ADR Average Daily Rate (Lisbon City 2014) Hotel Rooms Supply: Existing & Pipeline Existing in ,685 5, , ,017 1, Pipeline 1, Jupiter Hotel Lisboa Hotel Vincci Palace Lisboa Hotel Lux Lisboa Park Eurostars Cais de Santarém Turim Saldanha Hotel Turim Terreiro do Paço Hotel Hostel Pestana Memmo Príncipe Real Turim Boulevard Hotel Turim Marquês de Pombal Hotel Real Alcântara Alm. Reis Av. Liberdade Avenidas Belém Chiado Santos / Estrela S. Bento / P. Real Other Meliá Convento de Santa Justa Amoreiras Baixa Pq. Nações Source: INE and Observatório do turismo de Lisboa Castelo / Alfama Rooms No. (JLL Estimation) 4

5 Lisbon s Tourist Apartments A growing market May 2015 Lisbon s Tourist Apartments Market Like in other European cities, in Lisbon, this type of accommodation has been considered as an alternative to the traditional and massive hotel supply. The change of guests habits, that started looking for a more authentic and economic accommodation choice, capable of providing a new experience and closer to locals has had a great impact in this market. This changes lead to the development of several guest houses, hostels and tourist apartments, usually located in the historic centre, where there was a lack of supply. Simultaneously, investors looking for Golden Visa saw in this market an opportunity to obtain profits from their assets. With all this dynamic, we can currently attend to a great dynamism in the historic centre s buildings refurbishment, which contributes to a continuous growth of the supply of this type of accommodation. There are four types of players in this market: Developers, that develop buildings entirely allocated for this use and that usually sell fractions with the management of the operation guaranteed, p.e. Coporgest / Lisbon Best Apartments or Habitat Vitae (Five Stars) / Lisbon Downtown Lovers; Owner Operators, that promote and operate their buildings of tourist apartments, p.e. Heritage Apartments or Lisbonaire Apartments; Operators, that usually manage several units (individual apartments or an entire building) owned by third parties, p.e. Feels Like Home, Lisbon Serviced Apartments or Portugal Exclusive Homes ; or Individual operators, that normally operate their own apartments, which on a market that tends to professionalize and considering economies of scale most of the times end up joining the bigger operators. Despite the high growth, this stills a non-consolidated market, with a very recent legislation and with no statistical data, which difficult its measurement. Before the Local Lodging legislation implementation, in the end of 2014, some of these establishments were identified as residential units and not specifically for touristic use. Therefore, this study is base on several interviews to operators in this market and also on a sample of 70 apartments available on the booking.com platform. How did this market appear? During the last years surged several factors that led to the exponential growth of this market in Lisbon: Global trend- Increase of demand for alternative touristic accommodation in city centres - more authenticity, more experience; Rise of the B2C internet platforms that allow clients to book directly their accommodation, such as Booking.com, Airbnb, Windu, Homeaway, etc.; Lack of hotel supply in the historic centre, where at the same time, there was a huge amount of vacant properties; Decrease of demand in apartments acquisitions; New property taxes that penalize unoccupied property; New Urban Lease Law, that allowed to dislodge old tenants and the refurbishment of several buildings; Perception that the profit is higher than the traditional residential long-term leasing; Lack of legislation that allowed an easy entry for everyone interested; These factors triggered the entrance of new operators, lots of them individual and informal players, creating a deregulated market with under pressure margins. However, with new Local Lodging legislation, this market should regulate in a short medium term, becorning a more consolidated and balanced segment. Serviced Apartments The serviced apartments supply in Lisbon is short, there are only about 400 apartments located mainly at Av. da Liberdade. The current offer is more segmented to the corporate market, with typologies typically from T0 to T2, that provide the common hotel services. The serviced apartments are usually classified as HA Hotel Apartments and according to the market research, are usually more expensive than the Local Lodgings. The average daily rate per person is about 40 and the prices have slightly increased since the last year research. 5

6 ( /day) ( /day) Lisbon s Tourist Apartments A growing market May 2015 Local Lodgings Supply In JLL research is estimated that this type of accommodation has around 3,500 to 4,000 apartments in the Lisbon market, being a large part operated by individual/informal operators. This type of accommodation is usually sought by foreigners that usually travel in family or large groups, offering a more authentic stay than the traditional hotels and serviced apartments. According to our analysis, the apartments are mainly T1 or T2, but it can differ between T0 and T4. The quality of the existing supply is also diverse. Casas da Baixa Jules & Madeleine, Heritage Apartments or Mercador are some examples of high quality apartments and this operators stand out not only by its apartments finishings quality and premium/luxury decoration, but also by the personal service that provide to their clients. Regarding the location, according to the market research it is estimated that 85% of the tourist apartments supply is located in the main historic zones of Lisbon, like Castelo/Alfama, Baixa, Chiado/Bairro Alto and Príncipe Real. However, due to its informal characterization there is no reliable information about it. From our sample, the areas with the highest prices are Chiado, followed by Bairro Alto and Baixa, being Chiado and Baixa the zones where we can find the apartments with higher capacity. The price is influenced by the location as well as the quality and capacity of each apartment. While Chiado, with a high supply of premium apartments and with high capacity has a daily average price per person of 39, Castelo that has some lower quality categories and smaller dimension apartments, has a daily average price per person of 26. Comparatively to a review made last year, the prices have slightly dropped, due to the pressure of the increasing supply, mainly of apartments of individual operators. Demand The demand of tourist apartments is mainly from foreign tourists that come for leisure and city-breaks trips. This type of visitors come mainly in groups of more than two persons, looking for a more economic and authentic choice of accommodation. According to interviews made to some operators, we estimate an annual occupancy rate of about 60% in However, with the high level of demand registered, this value is expected to increase during this year. Pipeline 2015 Average Asking Price, by Apartment Capacity Chiado Bairro Alto Baixa Av. S. Bento / Santos / Liberdade P. Real Estrela 2 Persons 4 Persons 6 Persons 2015 Average Asking Price, by Season and Capacity Note: Analysis based in a sample of 70 apartments during Source: Booking - JLL analysis Tourist Apartments Supply persons 4 persons 6 persons High season Medium season Low season Castelo / Alfama It is expected the continuous growth of this market and lot of refurbishment projects are appearing. International and national investors or developers, are buying buildings in the Historic Centre of Lisbon with a refurbishment purpose. Converting the asset to tourist apartments allows a good profitability for investors, trend that is increasingly taken into consideration by Golden Visa investors. Due to the still informal process of asset management, it is difficult to identify new projects in this market, but it is expected a new pace. Alcântara Alm. Reis Av. Liberdade Source: JLL analysis Avenidas Baixa Chiado Pq. Nações Santos / Estrela S. Bento / P. Real Castelo / Alfama 6

7 Lisbon s Tourist Apartments A growing market May 2015 The Local Lodgings Law In November 2014, the government has created a law to regulate the Local Lodging market. According to this law, a Local Lodging is any residential unit with authorization for a temporary accommodation provided by remuneration, but without conditions for being considered a touristic development. In this regime are included villas, apartments or lodging establishments composed by bedrooms, like Hostels. This type of establishments activity is considered as provision of accommodation services and is not equal to the tourist establishment activity. This distinction allows an easier way to operate, when compared with the more demanding touristic developments law. In summary, a residential unit is considered a Local Lodging unit when: a) A house is advertised or intermediated by any entity as lodging for tourists or temporary lodging; b) In addition to the accommodation, are offered services like room cleaning or reception for a period bellow 30 days. Among this legislations requests, a Local Lodging should not exceed a maximum capacity of nine bedrooms and 30 guests (except hostels) and each player can only operate a maximum volume of nine apartments per building. To comply this legislation the operators have to register the establishment in the city council, providing the necessary legal elements and information, which will allow the professionalization of the sector. This registration is free and a mandatory condition to operate. Started the registration, the establishment will be subject to an inspection, in order to avoid any misinterpretation of the law. According to Tourism of Portugal, since the implementation of this law, were registered 1,300 apartments as local lodging in Lisbon, tripling the number registered so far. This procedure will enable the control of this market and also the establishment of metrics to follow the trends of this new and increasingly demanding market. 7

8 JLL Offices Lisbon Edifício Heron Castilho Partner logo if required Rua Braamcamp 40 8º Lisbon Portugal T: F: Pedro Lancastre Patricia Araújo Mariana Rosa Fernando Ferreira Managing Director Head of Retail Head of Office Agency Head of Capital Markets & Corporate Solutions Patrícia Barão Sofia Coelho Fernando Vasco Costa Maria Empis Head of Residential Head of Valuations Head of Development Solutions Research Director João Marques Head of Design & Build Miguel Kreiseler Head of Property & Asset Management Lisbon s Tourist Apartments A Growing Market COPYRIGHT JLL IP, INC All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of JLL. It is based on material that we believe to be reliable. Whilst every effort has been made to ensure its accuracy, we cannot offer any warranty that it contains no factual errors. We would like to be told of any such errors in order to correct them. Printing information: paper, inks, printing process, recycle directive.