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Silver Lining For Holiday Rentals

Despite significant drop-offs in some of New Zealand’s main tourist destinations, holiday rentals are proving surprisingly resilient, as Miriam Bell explains.

By: Miriam Bell

1 December 2020

Uncertainty has been the dominant theme of the year for most people and most businesses. That’s because the Covid-19 pandemic has cut a swathe through the economy, leaving many struggling. But, right from the start of New Zealand’s lockdown, it was clear that certain sectors would bear the brunt of the crisis.

One of those sectors, as is widely known, is the tourism sector. Before Covid it was worth $40.9 billion to the economy. With the borders closed to international tourists, that turnover has taken a hit. Domestic tourism, though, is booming. New Zealanders have heeded the call to get out and see their country.

According to Tourism New Zealand, domestic visitation in the July school holiday period grew across all regions by, in some cases, between 20- 50% compared to the previous year. Going forward, they say their scenario modelling shows domestic tourists may spend up to 18% more over January than the year before.

But tourism industry leaders have also warned that the absence of international tourists has left a gap that Kiwi travellers may struggle to fill. So what does this state of affairs mean for the short-term rental market? And what does it mean for investors who use their properties as short-term rentals?

Hotspot Market Overview

When it comes to the residential housing market in the post-Covid age,doomsayers have been proved wrong. In fact, both the sale and purchase and long-term rental components of the market have defied expectations nationwide. But, because of its dependency on tourism, the short-term rental market is different.

It’s also much harder to pin down data on. CoreLogic, for example, doesn’t have any specific data on the performance of holiday rental properties versus other types.

But CoreLogic senior property economist Kelvin Davidson says that the broader markets in places like Rotorua and Auckland City – which are known as tourism hotspot areas - have held up better than people would have expected.

In terms of rents, Auckland City and Rotorua are ticking along, although there has been a noticeable shift in Queenstown with rents in the three months to September 16.7% below a year ago. Much of that fall came in just two months over May and June and, since then, it’s actually been relatively stable, Davidson says.

“Our buyer classification data shows that mortgaged investors have retained a decent market share of purchases post-Covid in all three markets, so I’d infer from this that there aren’t any particular concerns about the letting market generally, although it may not necessarily hold for some of the holiday let properties.

“Based on the data we have and also what I hear out and about in the market, it seems that this segment is holding up fairly well, and certainly better than people (me included) were anticipating back in April.”

Nonetheless, investors have had to reassess what to do with their short-term rentals. Some have left their properties vacant, while others have opted to return them to the long-term rental market. And some have persevered with short-term renting because there is still a market there, albeit a much changed one.

Short-Term Data Wrap

Where has this left short-term rental markets around New Zealand? It’s possible to get some idea of the current status of different markets as compared to this time last year from AirDNA, which collects data from both Airbnb and Vrbo.

AirDNA’s data shows that in Queenstown there are 1,591 active rentals (of which 1,300 are entire houses) in November. That’s slightly down on this time last year but not by much. In November 2019, there were 1,706 active rentals, of which 1,479 were entire homes.

In the Auckland region there are currently 4,956 active rentals (of which 3,000 are entire homes). That’s as compared to 6,740 active rentals, of which 3,892 were entire homes, this time last year. Of those, there are 1,502 active rentals in the wider Auckland CBD area.

Meanwhile, in the other popular Airbnb markets – Rotorua, Wellington, Christchurch and Tauranga – there are currently 1,106, 2,336, 2,137 and 1,225 respectively. That’s as compared to 1,097, 2,817, 2,527 and 1,406 respectively in November last year.

It’s worth noting that these figures are only a guideline as there are many other short-term rental property platforms, like Bachcare, Bookabach and Trade Me’s Holiday Houses, so the true numbers are likely to be higher.

While the number of active rentals on the short-term market has not dropped to the extent many expected, AirDNA spokesperson Elyce Behrsin says their data on demand nights (the total number of nights booked for a given week) shows a year-on-year decrease across the board.

Supply nights are increasing, she adds. “This might be due to the fact that hosts are comfortable pulling their listings back up for rent now that the virus isn’t a domestic concern, but there still aren’t the guest numbers to help increase demand nights.”

Tourism Mecca Struggles

That means that the reality on the ground is tougher for many short-term markets than it has been in recent years. But it is Queenstown’s market which is struggling the most.

Sweet Homes Holiday Home Management’s Diego Torrezin says the market is not as bad as people anticipated, but the city’s heavy reliance on tourism has significantly affected the short-term rental sector.

“Domestic tourism is happening and that makes for some business but it’s just not the same. And people are simply not booking ahead. They usually book ahead, particularly over the summer months, because of foreign tourists. But now they know there is plenty of availability. So they aren’t. That makes it hard to plan.”

Many people took their rentals off the short-term market earlier this year and are waiting for the borders to open before they put them back on, he says. That means short-term rental supply is down. Yet hotels have got more competitive while younger travellers tend to go for cheaper accommodation, like hostels and campgrounds.

“Night rates are down, but it’s really uncertainty which is the issue. Everyone is waiting to see what happens. We are hoping the summer is going to be better, but with this uncertainty around booking up front, it’s very hard.”

Despite this, many property owners are pushing ahead and hoping something good is going to happen soon. Torrezin says the short-term rentals his company manages had pretty good occupancy in October and they are expecting bookings to pick up heading in to summer.

“Short-term rental owners should strategise to make sure their property stands out and aim to build brand recognition. But they should also ensure that the need for bookings doesn’t cloud their judgement. There is always the risk a property might be rented for a party so conducting due diligence on potential guests remains important.”

Focusing On Business

The other major market to be profoundly affected by the Covid-19 crisis is the Auckland CBD apartment market. However, it seems that it’s the long-term sector of this particular market that is the part struggling the most – thanks to the loss of international students.

Apartment Specialists’ Andrew Murray, who invests in this market himself, says that while 50% of the apartments which were short-term rentals have gone back on to the traditional rental market, the other 50% of them have stayed on the short-term market.

And that market is actually doing alright, he says. “Many hotels can’t function properly currently as lots are being used for quarantine. That benefits the short-term rental market in the Auckland CBD, although the apartments have to be well-located and in good condition.”

The Auckland CBD’s short-term rental market may not be what it was in recent years. But Murray believes it will return to form in the future – especially given the amount of money being pumped into developing the city and its offerings, like the new convention centre, and events like the America’s Cup.

Zodiak Management’s Stefan Nikolic agrees the CBD’s short-term rental market is not doing too badly. He says that after each lockdown they have seen an increase in demand on the return to level one.

“Now, the market is definitely picking up moving into summer, which is promising. It looks like it will be a decent high season. Not like when we had international tourists, but okay especially considering we are in the midst of a global pandemic.” In his view, those who did move their apartments onto the long-term rental market didn’t make the best call. “Long term rentals have been affected by the lack of international students, whereas domestic and business travellers mean short-term rentals are still in demand. So the short-term market is doing better than the long-term one.”

But, as in Queenstown, people are not booking as far in advance as they used to. Nikolic says the lead time for bookings used to be about 30 days and now it’s seven to 10 days.

“Property owners need to bear that in mind. We are still getting a decent occupancy rate, though: we have 80% occupancy across our properties at the moment. So if the calendar looks empty, don’t give up – keep at it and you will get bookings. They will just not be as far ahead.”

He adds that it could be worthwhile for those with short-term rentals to focus on business travellers. “If you do, ensure your property is work-capable. So provide a workspace: set up a desk and chair and ensure you have internet access and wi-fi. And then market your property accordingly.”

Regional Attractions

While the two best known short-term rental markets have faced prolonged struggles this year, the situation is different for short-term rentals in traditional Kiwi holiday destinations. Perhaps in response to the weeks spent in lockdown, once New Zealanders started moving round the country it seems the call of nature and the beaches is now stronger than that of the cities.

Bachcare chief operating officer Shaun Fitzmaurice says short-term rentals have been recovering well since the alert level two framework was announced. “We’ve found the recovery has been as big as the initial lockdown crash. And then more so. We did lose Easter but a two-week period in July was nearly as big as Christmas. And that is unheard of.”

However, they have observed that the city centres seem to have lost their shine. “Rather it’s destinations which offer that nature lifestyle factor that are proving popular for holidays. As opposed to those that offer urban attractions. People seem to want to be out of the cities.

“Also, accommodation suitable for bigger groups – people who want to get away and catch up with family and/or friends in a facility for themselves rather than in shared accommodation is in high demand. Short-term beach type holiday home-away-from-home accommodation provides that.”
‘Accommodation suitable for bigger groups – people who want to catch up with family and/or friends in a facility for themselves rather than in shared accommodation is in high demand’ SHAUN FITZMAURICE

It’s not just holidaymakers who are favouring these destinations. Fitzmaurice says a trend they are increasingly seeing is investors signing their new regional properties up with Bachcare. That is because they know they’ll see capital growth and they understand the potential benefits of a market with closed borders where people have to travel domestically.

But it’s drive-to destinations which are the popular ones, especially ones within the vicinity of Auckland, he says. “Investors should look for places that are not far from Auckland but are picturesque, like Coromandel, Matakana, Mangawhai.

“Or they could aim a bit further south: Taupō is at the crossroads of the North Island so it’s always a sweet spot. But people are going to its fringes, to the likes of Kuratau and Turangi. We’ve found our Rotorua properties have been a bit slow, but the Rotorua lakes area is very popular.”

Location is always key to the success of a short-term rental: Bachcare users consistently rate this as their first and most important consideration. But investors who want their properties to do well must ensure their rental offering is well-presented and maintained to a high standard, Fitzmaurice adds.

“There is a lot of choice out there for guests. Your property needs to stand out and rate well so think about what you can do to ensure that. Also, be ambitious but not greedy on price. It’s a dynamic market so don’t be afraid to move rates and take advantage of the market to keep up with demand.”

Top Tips To Boost Short-term Rental Performance

1 Do something different to make your property stand out. For example, provide a welcome pack with a letter, chocolate, fruit, even flowers. It doesn’t sound like much but it’s something people note in reviews and reviews are important these days. (Diego Torrezin)

2 Establish partnerships with companies that run activities and provide services for tourists so you can offer deals. Remember, it’s all about relationships and recommendations. These things are very helpful and help to build brand recognition. (Diego Torrezin)

3 In the age of Covid, with your listing description, think about offering a 100% refund if a reservation fails due to another lockdown. It gives people the certainty that if the booking doesn’t happen because of a lockdown then they will not be penalised or suffer. (Stefan Nikolic)

4 Post-Covid, guests are even more conscious of cleanliness. Always be rigorous in this area anyway, but now you need to emphasise that you use a professional cleaning company and list what is done in terms of cleaning procedures. Be detailed about the Covid tracking measures you have in place, too. (Stefan Nikolic)

5 For investors, the earlier you are able to secure a booking the higher the rate is likely to be – especially this year as bookings are not being made as far in advance. To that end, remember it’s the best properties that get booked first. (Shaun Fitzmaurice)

6 Many people leave their rates the same, but they shouldn’t. It’s a competitive market so be dynamic in your pricing in order to take advantage of the market. Don’t be afraid to move rates to ensure you can achieve the revenue necessary to meet your requirements. (Shaun Fitzmaurice)

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