Demand for short-term rentals returns
Occupancy rates are back to pre-Covid levels, but the landscape paints a different picture, writes Stefan Nikolic, of Zodiak Management.
1 April 2023
Has demand returned for short-term rental accommodation yet, or are we still waiting for tourists to come back to our shores after the Covid drought?
According to Tourism New Zealand statistics, we had just over 528,000 international visitors to NZ in December 2019, just a couple of months before we had our first lock down. In comparison, December 2022 saw only 359,000 international visitors arrive in NZ, showing we still have a long way to go before we reach pre-Covid levels of international visitors.
However, when we look at the occupancy rates data, we start to get a better picture of the demand versus supply in the short-term rental market.
Average occupancy for December 2019 was 73 per cent and average occupancy for December 2022 was 73 per cent - exactly the same.
‘There is still a 20 per cent increase in revenue after inflation’
FOCUS ON SUPPLY
This means there must be less short-term rental properties available now than pre-Covid as occupancy rates are the same, despite New Zealand having over 200,000 fewer international visitors in December 2022 when compared to December 2019.
When we look at the average nightly rates for these two months we find that the average rates in December 2019 were $234, and average nightly rates in December 2022 were $307 – that’s a big jump! This indicates short-term rental properties that are currently in the market are charging far higher nightly rates than was possible pre-Covid, yet are still achieving the same occupancy rates as pre-Covid, resulting in an overall revenue increase of about 31 per cent for today’s short-term rentals compared with the pre-Covid market.
If we take the unfortunate 11.1 per cent inflation into account experienced over those two years, this means there is s till a 20 per cent increase in revenue after inflation.
This large increase in nightly rates suggests there are not enough short- term rentals to meet current demand, even though the number of international visitors has fallen off so much compared to pre-Covid. If the number of listings were enough to meet current demand, then at 73 per cent occupancy we would expect to see average nightly rates to be about $260 in December 2022 due to inflation, not $307 as they were. What happens when those missing 200,000 international monthly visitors decide to drop by?