Portugal: Airbnb's "Creative Destruction"

Commercial rents spike in tourist zones; restaurants face 1% higher closure rate but survivors see 16% sales jump

Photo by Andreas Brücker on Unsplash

A new study (The Economic Footprint of Short-Term Rentals on Local Businesses: Evidence from Portugal by Ronize Cruz, Francisco Nobre, and João Pereira dos Santos) reveals how Airbnb-style rentals transform local business landscapes, especially in Lisbon and Porto. The research uses extensive firm-level data to track how different types of businesses fare when exposed to increasing short-term rentals.

Key Context & Numbers

• Short-term rentals represented 47% of tourist accommodations in Portugal by 2019

• Housing used for short-term rentals (2015-2020):

  • Porto: 12%

  • Lisbon: 11%

  • For comparison: Paris (4.6%), Madrid (3%), Barcelona (9.3%)

• The study analyzed 46,928 private firms:

  • 73% located in Lisbon

  • All single-establishment businesses

  • Tracked from 2013-2019

Major Findings

Business Closures

Areas with higher exposure to short-term rentals saw increased business closures. Most affected were businesses that had been operating with:

• Had about half the sales of surviving businesses

• ~40,000 lower sales per worker annually

• Often operated with negative profits

Closure mechanisms:

• Commercial rents rose dramatically in high-rental areas after 2015

• Tourist-oriented businesses saw 0.913-1.13% higher closure rates

• Restaurants and bars: ~1% higher closure probability

• Retail stores: significant closure increases when using broader industry categories

Surviving Businesses

Tourist-oriented businesses saw significant gains:

• Employment metrics:

  • 23% increase in hours worked

  • 25% increase in employee numbers

  • 28% increase in wages

• Financial performance:

  • 16% increase in sales

  • Significant increases in net profits

  • 14% increase in total liabilities

  • 17% increase in external expenses

  • 10% increase in liquidity

Resident-oriented businesses:

• 16% increase in sales

• 11% increase in total liabilities

• Some productivity gains

• No significant profit changes

Hotels:

• No negative impact on sales

• 1.27% increase in net profits

• 22% increase in liquidity

Local retail stores:

• 77% increase in sales

• Significant productivity gains

New Business Formation

Higher rental areas saw:

• 2.5-6% higher probability of new tourist-oriented vs. resident-oriented businesses

• 1-2.8% higher probability of tourist businesses vs. other types

• 0.7-1.6% higher probability of new restaurants/bars

New businesses compared to closed ones:

• Higher sales volume

• No significant productivity advantages

• No clear profit advantages

• Higher initial costs in high-rental areas

Methodology Details

• Used comprehensive firm-level accounting data

• Created registry rate measure: new short-term rentals in 2016 divided by the number of dwellings

• Employed shift-share instrumental variable based on:

  • Distance to top tourist attractions

  • TripAdvisor reviews

  • Google search data

• Controlled for:

  • Parish unemployment rate

  • Population density

  • Firm age

  • Pre-treatment trends

  • Industry and municipality fixed effects

Why It Matters

The ripple effects of short-term rentals fundamentally reshape urban economies in ways we're just beginning to understand. We're watching entire neighborhoods transform their identity as tourist-focused areas become more distinct from residential ones. This shift is fascinating because it happens through market forces reacting to urban planning. For cities worldwide, Portugal's experience offers a crystal ball view of what happens when short-term rentals become a significant force in the local economy.

What to Watch

Keep your eyes on how other tourist hotspots handle this transformation. The real story isn't just about housing anymore – how entire urban ecosystems adapt. Watch for cities experimenting with new zoning laws to balance tourist and resident needs. Commercial real estate markets will be particularly telling – they might start pricing in the "tourist premium" in specific neighborhoods. And pay attention to the types of businesses opening in high-tourist areas. Will we see a complete transformation of business districts, with traditional local services giving way to tourist-oriented ventures? The answers to these questions could reshape urban planning for decades to come.