Rent Rises Hit Setúbal & Leiria, 2026 IRS Cuts Loom

The Portugal rental market has seen rents climb sharply in several district centres, a trend that will force many households to reallocate up to €150 extra per month.

Key Takeaways

• Top gainers: Setúbal (+11.9%), Leiria (+11.3%) and Viana do Castelo (+11.1%) lead annual rent increases.

• Lisbon dipped 0.5% and Porto dropped 6.3%, offering tenants slight leverage.

• Median Lisbon rate stands at €21.80/m², while mid-range markets fetch €9.50–€11.40/m².

• From Jan. 2026, landlord IRS on leases ≤€2 300/mo falls to 10%, boosting potential supply.

The New Rental Hotspots

Data from Idealista reveals a pronounced shift away from Portugal’s two biggest cities. Setúbal’s average rent surged to €13.90/m², up 11.9% year-on-year, while Leiria climbed to €8.90/m² (+11.3%) and Viana do Castelo reached €9.50/m² (+11.1%). Other notable jumps include Faro and Ponta Delgada at €14.80/m² and €11.10/m² respectively (both +9.7%), and Coimbra at €12.30/m² (+9.3%). Meanwhile, Castelo Branco fell 2.1% and Porto eased back by 6.3%.

Underlying Drivers

Several forces are converging to reshape renting patterns:

• Remote-work relocations: professionals priced out of Lisbon seek coastal or smaller-city living, pushing demand in Setúbal and Leiria.

• Short-let regulations: tighter rules for Airbnb in Lisbon and Porto have redirected investors toward neighbouring districts.

• Transport upgrades: completion of new rail stops on the A13 corridor and highway expansions have cut commuting times, making towns like Leiria and Santarém viable for daily travel.

• Supply constraints: elevated borrowing costs delayed many building projects in 2022–25, so fresh units only hit the market now.

Policy Responses and Rent Controls

To ease pressure, the Portugal Ministry of Housing and the Institute for Housing and Urban Rehabilitation (IHRU) are rolling out new measures:

• Lease-update coefficient for 2026 will be set by a government formula with a fixed ceiling—replacing sole reliance on CPI.

• IRS (Imposto sobre o Rendimento das Pessoas Singulares) reduction to 10% applies to rental income from contracts under €2 300/mo, effective 1 January.

• Programa de Arrendamento Acessível auctions public units at controlled rates; 59 000 homes are due by mid-2026, with 10 000 reserved for vulnerable families.

• IVA cut to 6% on construction of rental housing, incentivising developers through 2029.

What This Means for Residents

For tenants:

• Budget impact: A 60 m² apartment in Setúbal now averages around €834/month—nearly €90 more than a year ago.

• Timing renewals: Signing before the new rent-update cap takes effect could still allow up to 6.94% increase in 2025.

• Tax relief: IRS deductions on moderate rents rise to €900 in 2026 and €1 000 in 2027 for qualifying leases.

For landlords and investors:

• Yield squeeze: Nationwide gross rental yield slid to 6.5%, and Lisbon yields hover at 4.4%.

• Negotiation play: Greater vacancy in Porto and Castelo Branco gives landlords more room to adjust pricing.

• Longer leases: Draft “Lei do Arrendamento 2026” enforces a three-year minimum term, improving income stability.

Tracking rent ceilings, upcoming tax incentives and the pace of new construction will be crucial for anyone renting or investing in 2026.