Azores islands are the true hidden gem of the Atlantic, and very few places on Earth match all of its facets. Nestled in the heart of the Atlantic Ocean, the Azores offer year-round spring-like weather and stunning natural beauty, from cascading waterfalls to tropical forests and mountains with breathtaking views. With top-notch infrastructure, the archipelago boasts EU safety standards and excellent transport access. The Azores are also just a 2-3 hour flight from mainland Europe with direct flights from the US and Canada.
Despite being an attractive location, the Azores have remained underrated until recent years. Even with the growing flow of tourists and expats, the Azores Islands are still significantly underpriced compared to their peers and provide unmatched opportunities for investors, especially those seeking to invest in a low-risk profile and sustainable assets like agriculture.
Why the Azores?
The Autonomous Region of the Azores is an archipelago of nine islands in the Atlantic Ocean and a part of Portugal. It is way less hip than another Portuguese island, Madeira, and much more secluded. The new development of the Azores started in recent years, and many expect it to boom in the near future.
Although Portugal’s Golden Visa program is shutting and applications submitted after February 16 of the same year are not guaranteed, the Azores remains an attractive option for those looking to relocate, invest, or both.
Since 2018-2020, with Brexit and the political and economic turmoil, investors from the UK and the United States are coming to play a significant role in the Azores market. A Tax Partner at CMS, Nuno Santos, says: "We started seeing in the market some funds that are ESG oriented, like investing in agriculture, renewable energy, and the Blue economy."
ESG is an acronym for Environmental, Social, and Governance. This framework creates a stakeholder-centric and sustainable approach to doing business and investing.
The interest of Western investors in ESG-oriented projects aligns with the government’s strategy for developing the Azores region. In the past nine years, €469 million went towards improving the sustainability of the agro-forestry sector under The Rural Development Programme for the Azores by increasing the competitiveness of local agricultural production while reinforcing the preservation and restoration of the environment and traditional landscapes.
The hottest market for foreign investors right now is real estate. There is no need for additional incentives for people to invest, hence a major reason behind the closing of the Golden Visa program. However remote markets in Portugal still need incentives, the Azores among them, which is why the government continues to support it with subsidies.
ESG funds and agriculture investment
The land where everything grows
The subtropical climate makes the Azores one of the few places in the world where it’s possible to grow crops all year round. And the volcanic soil lends nutrients and minerals to the growing process resulting in the natural abundance of produce.
"You can literally grow anything here," entrepreneur and winery owner, Pete Luckett, says. Luckett moved to the Azores a few years ago and bought a property with an old house and undeveloped land. "I didn’t need much help to develop it," he claims. Now he grows various fruits and vegetables, such as bananas, figs, oranges, tangerines, lemons, passion fruits, chestnuts, tomatoes, lettuce, cucumbers, watermelons, and cauliflower, among others.
Pete Luckett is now tapping into the Azores’ growing popularity as a foodie destination by opening a farm-to-table dining service with accommodation. He has already built two guest rooms and one suite by the pool and is currently constructing two more to meet future demand. With world food critics hailing the Azores as the "Next Big Food Destination" and travel magazines placing the islands in the spotlight, Luckett expects many tourists to fully book his Airbnb-a-la-carte at a rate of €150-200 per night.
Portugal’s thriving olive production market has seen significant volume growth in recent years, and the Azores region has the potential to become a vital player in this industry. The local wine market is also emerging, with Pico Island producing delicious white wine varieties. With other islands in the archipelago waiting to return to producing local wines, the Azores present promising investment opportunities for olive and wine production.
Interview with Pete Luckett
The low-risk investments
The founder of Migronis Anatoly Letaev says that funds engaged in agriculture have a very straightforward business model; everything is transparent and safe. He points out the annual return on investing in these funds is about 2%.
"It’s about capital preservation," says Alex Lawry-White, the Private Equity Advisor at Pela Terra Farmland Fund. "Farmland is very non-volatile. That’s what attracts people."
Alex Lawry-White and Nathan Hadlock founded Pela Terra, an ESG fund that aims to reverse soil care’s decline at scale. The fund generates a 5% annual return by buying land and then renting it to operators. They sell the land at the end of the fund, producing an additional 14% return.
Typically, the same operators renting the land are the buyers, growing crops such as almonds or olives, which become positive cash flow in four to five years.
The fund’s target size is €30 million, and the owners claim they have met 75%.
Farmland as an asset class is dependent on population growth, Hadlock explained. Over the last 40 years in Portugal, there just hasn’t been a down year. And the farmland is limited. "So if you’re looking for capital preservation, especially compared to other investments, farmland is perfect."
The agriculture market has become more attractive, with more investors wanting to invest while prioritizing environmental, social, and governance (ESG) factors.
Anatoly says that the areas of the country that have been underdeveloped are now experiencing a significant boom. Similarly, the Azores are only starting to experience active development, and the entrance costs remain relatively low. Nevertheless, the expected rise in investors from the US, Canada, EU, and Brazil may significantly increase prices in the Azores in 2023-2024.