Big driver behind soaring rents — the “Airbnb effect” that removed countless properties from global cities’ long-term rental markets — reverses.
By Nick Corbishley, for WOLF STREET:
With many of the world’s most popular tourist destinations locked down, and many flights canceled, making international tourism all but impossible, the world’s biggest disruptor of global tourism, Airbnb, faces a starkly different market reality. As of mid-April, new bookings on the company’s portal had plunged 85% year over year while cancellation rates were around 90%, according to AirDNA, an online rental analytics firm.
Airbnb has warned that its 2020 revenue could come in 50% lower than its 2019 total. This is a company that wasn’t even able to turn a profit when the Good Times were raging.
To try to keep investors on board, management has unleashed a brutal restructuring of the group’s global operations. Last week, it laid off 1,900 workers, around 25% of its global workforce. The San Francisco-based company also rescinded a contract it has with a call center in Barcelona, resulting in the immediate loss of a further 1,000 subcontracted jobs.
One of Airbnb’s biggest rivals, Amsterdam-based Booking.com, is in similar straits. In March, its American parent company, Booking Holdings, posted a first quarter loss of $699 million, down from $765 million a year ago, as bookings plummeted 43%. Also for March it reported a decline of over 100% in room nights, a feat that was made possible by the fact it received more cancellations than new bookings during the month.
“Looking at things a different way, our newly booked room nights, which exclude the impact of cancellations, were down over 60% year-over-year in March and down over 85% in April,” said chief executive Glenn Fogel at last week’s earnings presentation. “This gives you a clear indication of how much our business is currently impacted by this crisis.”
Things are set to get even worse. In April, Booking warned investors the virus crisis would impact the second quarter of 2020 “much more significantly” than the first, though it declined to offer full second-quarter guidance.
The company recently applied for Dutch government support to help pay its 5,500 workers in the Netherlands, which did not go down well with Dutch taxpayers. Like so many other large listed companies, Booking spent $4.5 billion buying back its own stock in 2019, significantly reducing its capital and impairing its ability to weather future storms such as the current one. Now, to tide it over, the company has borrowed $4 billion of emergency funds.
For companies like Airbnb and Booking that can raise such vast sums of money with such apparent ease, this crisis is likely to be painful but not fatal.
But the same cannot be said of many of their professional hosts and so-called “super-hosts”, some of whom took out huge amounts of debt to buy up prime-located properties in order to rent them out, at huge profit, to big-spending overseas tourists. Now, they’re struggling to pay back those debts as their incomes plummet.
Airbnb listings in Paris have “collapsed” since Covid arrived. according to Ian Brossat, the Paris deputy mayor in charge of housing. In the first three weeks of April, Airbnb hosts registered a measly 40 stays with authorities, compared to an average of 1,210 a month last year.
In Spain there are around 220,000 owners of tourist lodgings, 95% of whom are private individuals. They’ve already racked up losses of €448 million due to the coronavirus crisis. Those losses are expected to reach at least €2.9 billion by the end of 2020, according to calculations by the Spanish Federation of Associations of Tourist Housing and Apartments (Fevitur). The worst of the pain will be felt in Catalonia — where annual turnover for owners of tourist lodgings is expected to fall by 85% — followed by Andalusia and the Valencian Community.
A similar trend is unfolding across many of Europe’s most popular tourist destinations, from Amsterdam to London, to Rome.
With no end in sight to the travel restrictions crippling global tourism, Airbnb hosts are scrabbling around for a plan B. In Canada, the company even asked the government to lend a helping hand with tax breaks and other forms of financial support. Some hosts are hoping beyond hope that domestic tourists will pick up some of the slack once national travel restrictions are eased. Others are abandoning the tourist rental business altogether.
Real estate agencies in London are noticing that growing numbers of landlords who used to advertise on short-let platforms are now offering long-term leases as a result of the Coronavirus crisis. A similar phenomenon is happening in Spain where big cities such as Madrid and Barcelona have seen a sudden surge in the number of new upmarket, centrally located flats being advertised on real estate agency websites.
In many cases, the property owners are only after a short-term fix, in the hope that international tourism will pick up early next year. Rather than offering long-term leases of five to seven years, they are offering short leases of up to a year. In Barcelona, where 90% of the city’s tourism is international, “many hosts have entered into this type of leasing to be able to hang on until the beginning of 2021,” says Enrique Alcántara, president of the Barcelona Tourist Apartments Association (Apartur).
However, short leases like these are only legal for people who move temporarily to the city for work, says Janet Sanz, Barcelona’s deputy mayor. As no one is currently allowed to move between Barcelona, which is still in the first phase (phase zero) of lockdown, and other Spanish provinces, let alone reach the city from other countries, most of these rentals are likely to be illegal. According to Sanz, anyone caught bending the rules will be prosecuted.
In some cities, as the glut of rental properties grows, there are already signs that demand for rented property, whether short- or long-term, is slumping. Many expat workers moved back to their native lands before the lockdown began, abandoning their flats and their rents in the process. Others who missed that chance are just waiting to board the next plane out. There are also the millions of homegrown workers who have lost their jobs and have stopped paying rents altogether.
Having entered lockdown slightly later than most other European capitals, London saw an 11% year-on-year rise in the number of homes available to rent in March, as well as a 2.2% fall in prices, according to research from Hamptons International. In other cities, where lockdowns have prevented landlords from even showing their properties for the last two months, it is too early to tell just how big the impact will be.
But the fact that growing numbers of holiday property owners are flooding the long-term rental market with their own properties, at a time that millions of workers have lost their jobs while millions more have upped sticks and headed home, does not bode well for long-lease landlords. Nor does the fact that one of the biggest drivers of soaring rents of the past ten years — the so-called “Airbnb effect,” which has removed millions of properties from global cities’ long-term rental markets — is losing its power.
City mayors and city councils will try to take advantage of its waning power to ensure that vacation rentals return to the traditional rental market. For tenants who’ve had to endure years of soaring rents as wages have generally stagnated, it’s good news at long last, assuming they’ve still got jobs with which to pay the rent. By Nick Corbishley, for WOLF STREET.