On paper Lisbon looks tight: prime Chiado at 3.4% gross, Príncipe Real at 3.6%, Avenidas Novas at 4.0%. The Algarve looks loose: Albufeira at 5.6%, Lagos at 4.8% with AL upside. Before the reform that was an easy trade.
The AL (alojamento local) licensing freeze changes the math. Lisbon city centre, Cascais, Porto's Baixa — all under 'zonas de contenção' that suspend new short-term-let licences or make renewal conditional. The Algarve has a patchwork: Lagos and Albufeira still issue, Faro restricts in central parishes, Vilamoura operates under the Quarteira rules.
For a buy-to-hold-and-long-let thesis, Lisbon mid-tier (Alvalade, Arroios, Areeiro) at 4.4-4.6% with rental growth north of 7% is the cleaner play. Tenants are plentiful, voids short, and the Lei do Arrendamento Urbano reforms of 2024 rebalanced the landlord position slightly.
For a short-let yield-chase, Lagos and Albufeira are still open, but budget hard for seasonality. October to March occupancy in Albufeira falls below 40%. The blended 12-month number needs that haircut baked in — gross yields look attractive until the winter voids show up.
Straight answer: mid-tier Lisbon for cash-flow-plus-growth with compliance simplicity. Western Algarve for yield if you can operate an AL properly and carry seasonal voids. Avoid prime Lisbon unless the buyer is playing wealth preservation in euros.