2023/2024 – Designing the Future
The Baixa can go back to being the place where people like to be, live, and work. We still have time to make up for a lost time, but it’s necessary that a municipality like Lisbon looks at its Historical Center and, together with a cosmopolitan, cultured, and experienced team, define a strategic plan for commerce, services, and leisure in this noble area.
We have many people with great knowledge and capacity for such an undertaking, all that is missing are political decision-makers who have the courage and will to move forward.
How is it possible that in the so-called Pastelaria Suiça quarter, the most valuable in Portugal, there is no political will from the State to realize that the development of this area cannot be left to the free will of a private entity?
How is it possible that for so many years the State and the Municipality didn’t develop a clear vision for what they wanted the offer in this block to be?
How is it possible that it is not understood that everything that happens in this block will shape, for decades to come, the development of the historic area of the city?
Do we or do we not want to have a downtown Lisbon that is a pleasure to be in, to work in, and to visit?
We have to take action because there is no point in playing the blame game and lamenting the past.
We have to see reality as it is, and for that it is important to understand how everything happened over dozens of years, to understand how we got to the state we are in today.
We have to assume this reality and accept the challenges it may pose. The goal is for the center of Lisbon to be as attractive, or more attractive, than other European city centers.
We have to move forward in the search for solutions.
If we have been able to create and develop highly successful shopping areas in unlikely spaces (malls), it is because there is enough know-how to develop a vision of integrated commerce, services, and leisure, in an area as rich and noble as Lisbon’s historic center.
It is to move on to action, to design the downtown that satisfies our pride, raises our self-esteem presenting the ability of our artists, the quality of our products, and the genius of our technicians.
It is to publicize this plan. It is to motivate entrepreneurs to buy into that ambition.
It is to act.
Application for World Heritage – an opportunity for action
Baixa Pombalina’s application for World Heritage status is an opportunity to rethink this area with a vision for the future. The Baixa has to go back to being a place where the people of Lisbon like to come, attracted by its beauty and its energy.
A survey should be done to identify everything that this area is worth and a map should be drawn where all that heritage should be marked, not only historical heritage from the time of the Marquis of Pombal, but heritage in the sense of everything that the Lisboans want: I’m talking about Commerce, Services, Leisure areas, Museums, Churches, Palaces, Cafes, Restaurants and Hotels with soul, public or private institutions, public offices, Banks, Transportation, etc, etc, etc…
Next, we should make a national survey of other companies/institutions/activities (like the ones described above) that we would like to see in Baixa Pombalina and that would affirm the authenticity of the place.
This survey of what exists and what should exist is not easy to do, it requires work and implies difficult decisions.
But with this work finished it will then be possible to hire a developer that can present a new Baixa Pombalina to all these entrepreneurs.
Only with a vision of what we would like the Baixa to become will it be possible to move in the right direction. It will be worth little to have the Baixa Pombalina classified as a World Heritage Site and serve to attract more foreign tourists without being able to charm the locals again.
The former Swiss Pastry Quarters
This quarter in the center of Lisbon was incomprehensibly abandoned for many years. This abandonment largely contributes to the degraded image of the Baixa Pombalina.
Now the building is being renovated, and I do not doubt that good architectural work will be done.
But how will this space be occupied? Does the local authority understand that whatever is presented to the public will condition the future development of commerce and services in the Baixa area?
The CML cannot “wash its hands” of what will happen there, even if it has to take drastic measures while we are not facing confirmed facts.
Much of what has happened downtown is the effect of years of wrong legislation and bad planning. As we begin to explain here:
1941/1970 – Rent has frozen in times of stability and low inflation
In 1941 Salazar’s government created a Lease Law that was supposed to defend tenants. A landlord was free to rent his property for the value he thought was right to make his investment viable, but he had to keep that rent value as long as the tenant occupied the space and the contract could not be terminated by the landlord.
It was a balanced law that ultimately served the interests of all parties.
Those were years of near-zero inflation, the tenant knew what his rent expense was and knew he couldn’t be evicted, and the landlord had a fair return on his investment.
In general, most landlords were financial entities that monetized their liquidity by investing in real estate. Or they were individuals who wanted to monetize their savings: often it was a way to secure an income for retirement, or to secure an income for their heirs.
Rarely did people stay in the same house for a lifetime, it was easy to move house. There was a wide availability of houses for rent, both in the more affluent and more popular areas. You moved frequently, either because you wanted a bigger or smaller apartment, or because you wanted to move to another area or city.
Those were the years when all over Lisbon you could see “writing” on the windows, little white squares glued on the glass, signaling that the house was free to be rented.
The first signs of coming inflation began to appear in the late 1960s (from 1956 to 1967 accumulated inflation had been less than 40%). At that time the Rental Act of 1941 should have been amended to allow progressive adjustments to the rents, at least in line with inflation.
But there was neither the courage nor the political will to introduce this change. And so began a process of degradation of the rents paid by the tenants.
It was a political mistake made by Marcelo Caetano’s government, a mistake that would be followed by all governments until the early 2020s.
1970/1984 – The same Lease Law in times of instability and high inflation
In the early 1970s, Portugal began to go through a phase of economic problems that led to years of high inflation that the country was not used to. It was the oil shock and the increasingly high expenses of the war in the colonies.
The years after the 25th of April came and the economic situation deteriorated even more. The inflation rate skyrocketed. If before the 25th of April, there was no political will to revise the Rental Law, after the 25th of April this became a taboo subject. And every year there was a lack of courage to face this situation.
But the consequences of all this were serious for the country, (as we will see later), without the population realizing it.
Between 1968 and 1984 accumulated inflation reached 1082%. That is, during this period the cost of living rose almost 11 times.
Everything went up in price except rents, which remained frozen.
If, on the one hand, the weight of the rent was losing value in the tenants’ budgets – salaries were also adjusted -, on the landlords’ side, the value of the rents received tended to be insignificant and no longer even covered the investment costs in maintenance works.
The result: the city’s dynamic was frozen. No tenant left the house he was renting, no company left its premises. The cities always had the same tenants and always had the same stores. Nobody gave their house to the landlord unless they received an indemnity or a transfer value.
1984/2012 – A small change in 1984 did not unfreeze the cities
In 1984 a cosmetic change was made to the Lease Law allowing rents to be updated annually at the rate of inflation.
For existing contracts, this brought nothing new, because it didn’t take into account that the accumulated inflation from 1968 to 1984 had been 1082% and rents had lost most of their value.
This change was positive for new contracts, but almost nobody risked renting houses that were free again.
Over dozens of years, an idea of fatality has developed – as if it were normal for a tenant to pay a negligible rent and for a landlord to have to survive on a negligible rent.
And it was always more difficult to change this situation, because soon voices would appear defending the low rents… without concluding that it was the tenants who became the real “owners” of something that didn’t belong to them, while the landlords felt the rents received didn’t cover the condominium expenses or allow for capital works.
And so we witnessed a slow and permanent degradation of the buildings in the cities.
Lisbon in particular deteriorated due to a lack of building maintenance. The new rental market disappeared, the stores became old and uncompetitive, the tenants of the apartments became old, and the city became devoid of young people.
The houses that were being vacated due to the death of the tenant reached an impressive number of 200,000 dwellings. And they didn’t come back to the rental market, either because the landlord couldn’t afford to do the renovations or because the landlord was afraid to rent again.
The situation for stores and offices also became dramatic. Many of the leases were to companies that, even when they stopped their business, did not give the key to the landlord. These were spaces that remained blocked until the tenant was able to get someone to pay him or her a finder’s fee. But when they did, the landlord would continue to receive the same paltry rent, and the previous tenant would still do business with the situation.
The cities were filling up with closed stores, but they did not become the property of the legitimate owners of the spaces.
The freezing of the city center boosted the rapid and disorderly development of construction in the peripheries, where young people and other people from the interior who came to work in large urban centers went to live. All the housing was bought on credit, putting families in debt, in most cases in unprime locations and with a poor quality of construction.
It became difficult to move because you had to sell the house and take out a new loan to buy another one. Let’s not forget that until the 2020s there were almost no real estate companies.
The freezing of cities also led to the appearance of shopping malls, a necessity to face the degradation of street commerce and the difficulty of finding stores to rent without having to pay a lot of money.
Areas that were once important centers of commerce and offices were losing population, becoming degraded, and emptying. The cities became “donuts”, empty in the center, full in the periphery.
1984/2012 – Dozens of years tapering off national consumption in malls
National brands lost space to develop. Through the 2nd generation malls, the doors were opened to all kinds of international global brands. The offer became standardized in the international and mass market, and luxury did not develop.
It is commonly said that shopping malls came to destroy traditional commerce, an incorrect statement because it confuses cause and consequence.
Until the mid-1980s there were no malls (the first big mall was Amoreiras, opened in 1986) and commerce was on the streets: the best stores occupied the prime areas and conquered space from less dynamic stores, or those that decided to go out of business.
As rents went down, the rent expense had less and less weight in the general costs of each store. In the 2010s, Lisbon’s prime areas had stores that paid rents of a few tens of euros. Unprofitable or aging businesses were surviving because it was almost as if they didn’t have to pay rent. And several times they waited for someone to pay a high transfer value.
The years went by and the street stores aged and didn’t feel the need to modernize, they didn’t feel the pressure of having to increase revenues to pay the rent.
It was this progressive aging of the supply in the streets, at the same time that getting a space implied paying high prices, that created the opportunity offered by the malls to new and more dynamic stores.
And thus was born the success of Amoreiras where, in the beginning, most of the stores were street stores or new proposals by national entrepreneurs.
The national consumer joined in force and the retailers realized that they had to be where the consumer was.
The success of Amoreiras inspired the appearance of other malls. The 2nd generation malls (Sonae) were born, already with another management model that bet on international successful brands, because they generated traffic. This started to make it difficult for new national brands to enter because they were not able to attract as much traffic, and sometimes they were not even able to pay the high rents of the malls.
And so a gap developed between malls with a large offer of international brands and high rents, but with the public, and the streets with aging stores and low rents, but without the public.
This reality has been getting worse over dozens of years.
The Chiado fire in 1988 destroyed some of the premium stores in the historic center of Lisbon and helped to give visibility to Amoreiras and to drive audiences away from the Baixa.
I insist on this point: the malls developed because the streets were aging, empty, and blocked. It wasn’t the malls that aged the street commerce, it was the street commerce itself that let itself age, while the younger layers moved to the peripheries and away from the city center.
1984/2012 – Dozens of years of unbalancing the national economy
The country missed the opportunity to help its local brands become global brands. The 1980s marked a time when economies began to open up to international competition, a time when each country’s local brands began a path of conquering other markets.
Today, any Western country has several brands that have become important and distributed in various markets. Think of brands from Spain, Italy, France, Switzerland, Belgium, the Netherlands, Norway, Sweden, the United Kingdom, Finland, Germany, Austria, etc.
We are left with a question: Why has Portugal, which in the 1970s and 1980s had good local companies and some good brands, not participating in this movement of making its brands global?
This question is important and is rarely asked or answered.
The brands from each country that from the 1980s on grew and expanded to other markets first bet on their domestic market and after being successful went on to conquer other international markets.
The development model of Portuguese commerce through shopping centers was a brake for national brands, which were generally passed over by the big shopping centers in favor of established international brands.
And street commerce from the mid-1980s on was already starting to age and lose public.
In other words: the streets were losing their charm for the development of new national brands, and the malls closed their doors to the development of new national brands.
Through a network that expanded throughout the country of increasingly active malls, and with great power to sell products and win over consumers, Portugal became an open door for international brands while national brands had great difficulty in asserting themselves and growing.
For all these reasons, the national industrialists had great difficulty in affirming themselves with their brands, but they found an alternative by developing themselves as manufacturers of products for international brands. A solution that adds little value and takes away the industrialist’s independence.
The power is in the brand, which dictates the purchase price.
To be competitive, the industrialist has to lower costs, and lower salaries. And so Portugal has not managed to create a high-value-added development model that would free up funds to pay better salaries to better-trained teams.
Portugal was unable to create large companies that could become global brands and provide jobs for young people with training and ambition.
If the 2012 amendment to the Lease Law had been made in the 1980s, Portugal today would be a completely different country, more competitive, with more orderly and lively cities, with fewer disorderly peripheries.
2012/2022 – The new law that came late, was neither understood nor explained and changed the Baixa
In 2012, Minister Assunção Christmas and the Passos Coelho government were “forced” by the Troika program to change the Lease Law.
It was a fundamental update of the law, but the minister didn’t seem to have understood why she did it, nor could she explain why she did it, she could only say that she was forced to do it. The change to the Lease Law restored a situation that had been unbalanced for more than 40 years.
In other words, in practice, it gave landlords what belonged to them, the ownership of their spaces.
Such a drastic change after 40 years of slumber would have been an opportunity for the municipalities to draw up plans to manage the empty spaces that were huge at the time.
As this planning was not done, it was left to the market and the initiative of each person to occupy and make the free spaces profitable. There was still no political will to build a vision for repopulating the aging cities.
It would have been time to look at the reality of several European cities and take advantage of the void to “design” what would be desired as a transformation of Lisbon’s streets, starting with its historical center.
It was a lost opportunity to recover important delays.
The 2012 Amendment to the Lease Law, was not explained and was misunderstood by the general population, but it brought two important changes to the development of cities.
1) The suburbs stopped growing so intensely, while at the same time, the cities saw many of their old buildings being renovated and coming back to life.
2) The opening of new shopping centers stopped, and many shopkeepers began to invest again in the streets that had been dormant until then.
In downtown Lisbon, right after the law was changed, several landlords started to revitalize the buildings, apartments were renovated to accommodate the new Local Lodging, several stores that were closed were put up for rent, and several buildings were transformed into hotels.
At first, everything happened at a slower pace, but after a few years at an accelerated pace.
But after 10 years since the law changed, which brought about a change in downtown Lisbon, there is still no idea for the future.
The municipality let the individual owners decide what they want to do for their spaces without there being a global idea for the area.
What is discussed are trifles, details about bike lanes, AL, traffic conditioning, dumping, garbage, etc. But they don’t discuss what model they want for the area.
2012/2022 – The emergence of luxury commerce on Av. da Liberdade
Just as shopping malls were the consequence of aging streets, the development of Avenida da Liberdade was the consequence of the success of shopping malls and the absence of prestigious streets for luxury commerce.
The success of Avenue was not the result of a strategy. It was the meeting of an opportunity (renovated buildings with the availability of commercial spaces) with a need (spaces for the opening of international luxury stores) and a chance (the success of the Prada store in Lisbon in crisis).
In the early 2010s, Portugal was going through an acute financial crisis, purchasing power had fallen, the population increased savings, and commerce was suffering. But Prada opened its store on Avenida da Liberdade, a very well-decorated and very well-promoted store that was an immediate success and drew the attention of international luxury brands to the area.
We cannot forget that the Louis Vuitton store was for several years almost alone on the Avenida da Liberdade and nothing was happening. The offer of stores was reduced, and the premium commerce was distributed in several places in Lisbon.
In a few years, everyone wanted to go to the Avenida, the offer grew and the public appeared. The big transformation happened in 2014/2015: Avenida da Liberdade took the premium commerce from other locations, and everyone knew that “Luxury” was on Avenida da Liberdade.
Another great lesson is how important thing is to manage supply.
What happened on Avenida da Liberdade could have happened in downtown Lisbon if the city council had, for example, expropriated the former Pastelaria Suíça block and in 2012 invited a large super-luxury hotel group to install a unit there, at a time when downtown was attracting the attention of great international figures who were discovering an abandoned and degraded Lisbon, but full of soul and charisma.
In summary:
There were many years of immobilism in the Lease Law, which was turned into a “sacred cow”. This immobilism over 40 years, generated:
- Habituation to live with very low old rents.
- Destruction of the rental market, creating easy business opportunities for the banks through loans to buy houses in the peripheries.
- Indebtedness of families for years to pay for the purchase of a house.
- Low mobility to exchange homes, which generates low mobility to take advantage of new job opportunities
- Disorientation in cities with degradation of the existing and construction of new peripheries unpleasant to live in. All this environment contributes to the low self-esteem of the Portuguese.
- Displacement of younger people to the outskirts of the cities, leaving older people to continue to live in their houses in the city even though they are in disrepair.
- Destruction of street commerce and markets, and support for large shopping centers.
- Open doors to the promotion and sale of all kinds of international brands through the large shopping centers that acted as a brake on the development of strong, global national brands.
- Paralysis in the maintenance of cities, providing big real estate deals with construction in the peripheries.
- Large revenues for municipalities were generated by rampant and often chaotic construction in the peripheries, while the cities were degrading due to a lack of building maintenance.
- Large commuter traffic movements between the population that moved to the peripheries and the jobs that remained in the cities.
- Current lack of understanding of correct measures to repopulate the cities.
- Disqualification of the historic city centers that after suffering desertification over many years, is now taken advantage of for low-quality tourist businesses.
The abrupt change of the Lease Law in 2012 surprised the country and the authorities. We can see a lot of demagogic and populist screaming, but rarely look coldly at reality and try to mend what took dozens of years to destroy.
One Note
Let justice be done. Only the Santana Lopes’ government had the courage, in 2005, to propose a real change in the Lease Law. But this legislative initiative (which was called the Arnaut Law) fell with the dissolution of the Assembly of the Republic and José Sócrates’ government took advantage of this fact to politically (and demagogically) liquidate any chance of revising the Rental Law, which would only be altered by the imposition of the Troika in 2012.
When the past is not understood, the same mistakes are made all over again.
The 2023 State budget has once again introduced a sprain in the rents by limiting the annual update to 2% when it should be 5.43%. For landlords, there is a loss of future income because the increases in the coming years will be on a smaller base (102% instead of 105.43%). And landlords will never recover this amount. We are back to past times that produced such bad results.
And I am amazed to see that there is no public reaction to such a wrong measure.
You can read this article in Portuguese here.
*Antonio Moura is 68 years old, married, and has 3 daughters and 2 grandchildren. He has a degree in business management and was an entrepreneur in downtown Lisbon, in the distribution of international luxury brands. Marathon runner and lover of good food and good drinks. Passionate about Porto Covo and the entire Alentejo coast. His mantra: Portuguese entrepreneurs know how to produce excellence for international brands. We have to be excellent at developing our brands and thus increase the added value that stays in Portugal. A reader and supporter of Mensagem since the very first moment.
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