Do you know which city has the largest number of Airbnb listings in the world? It’s London. There are over 80,000 listings in our capital city alone. And with the popularity of short-term lettings likely to accelerate again as pandemic restrictions slowly ease, it won’t be long before landlords elsewhere in the country begin seeking some luscious lettings lolly of their own.
The short-term rental industry has exploded in popularity over the last decade. Holidaymakers and business people looking for more than a hotel room love the ability to rent anything from a single room to whole properties across all price brackets. This has created unprecedented demand.
What’s more, it’s never been easier for property owners to cash in. This has led to a slew of local management companies offering their services – something that has given traditional letting agents the heebie-jeebies. Will they be muscled out and left with a diminishing stock of rental properties as landlords are tempted away from traditional assured shorthold tenancies (ASTs)?
In the words of Guy Westlake, the founder of The Professional Host Alliance, “short-term rentals are poised to shape the future of traditional estate agency and property management”. Although one might expect a voice of short-term rental operators to extol the virtues of their own community, Westlake’s warning that “those who shun change risk being left behind” will undoubtedly resonate with letting agents.
The big question, of course, is whether this change is something to fear. Where some see threats, others sense opportunity …
The appeal of short-term lettings
Whilst agents tend to define short-term rentals as anything shorter than six months, Airbnb tenancies tend to be shorter. In fact, London rentals are restricted to just three months and holidaymakers might only want a property for a week. This high turnover of tenants leads to increased maintenance costs and insurance premiums for landlords, and higher rents for tenants. For many, however, the pros still outweigh the cons.
For example, tenants enjoy the fact that bed linen and an equipped kitchen with appliances, utensils, crockery, cutlery and glassware is included. It’s a true ‘home from home’ experience that makes them feel as snug as a bug in a rug. It’s also usually cheaper than a hotel with the added flexibility to extend one’s stay on a weekly or monthly basis.
Landlords also love the Airbnb model because - not to put too fine a point on it - money talks. Short-term tenancies earn over 25% more than a longer-term tenancy even with a 70% occupancy rate. Good money can even be made over a weekend. You can also earn up to £11,850 tax-free before you exceed HMRC’s threshold.
What landlords like the most, however, is the flexibility. They can list their properties for a short time during void periods between AST tenancies. They can even earn money while their property is listed for sale. It’s this ability to choose when their property is available with few tie-ins that really appeals. This is particularly advantageous for student landlords that need occupants during university summer holidays.
Cause for concern
Many agents worry that Airbnb and other short-term lettings companies hoover up housing stock that would otherwise be available for ASTs. This not only has an impact on letting agents’ business; it also pushes up rents and affects communities. In other words, they see Airbnb as a dangerous market disruptor that encourages landlords to bypass agents and pushes less affluent renters out of districts they’ve lived in for years.
Is this just a worst-case scenario? Time will tell. However, there’s no doubt that the short-term lets sector is expanding faster than a lottery winner’s bank balance. A report commissioned by ARLA has highlighted that active listings on Airbnb have increased by 33% in a single year.
Even more worrying, 2.7% of UK landlords have already made the switch from long to short-term lettings. That’s 50,000 homes ripped away from traditional lettings agents. What’s more, around 10% of all UK landlords admitted they were tempted to follow suit. That could mean hundreds of thousands of properties removed from traditional private rented housing stock. No wonder agents are biting their nails.
A new opportunity
The good news is that agents are well placed to exploit the demand for short-term letting themselves. Why let the likes of Airbnb dominate when you could easily provide this service yourself? Good agents already have both the property expertise and brand equity to succeed in this emerging market. Therefore, with a little diversification, short-term lettings could turn into a long-term revenue stream.
Offering an Airbnb-type facility, but with the added personal service that agents are renowned for, could also improve your stock with existing landlords. Indeed, you could offer an integrated service that helps landlords to make money during vacant periods. What’s more, if the sales market is slow, or a vendor is struggling to sell an empty property, a short-term let is a good way to ease the pressure and bring in some income.
Embracing short-term rentals will also give agents an edge over competitors. This is sure to generate more business, especially in sectors like Build To Rent where corporate landlords will appreciate short-term returns while they search for multiple AST tenants. There’s also the enticing opportunity to break into the holiday lettings sector if you’re based in a tourist hotspot like Cornwall or Devon. The fact that your agency is already well-known and respected in the area will undoubtedly help you to throw your towel on the metaphorical lounger before your competitors do.
Here to stay?
It’s possible, of course, that the Airbnb boom could just be a fad. Maybe landlords are only attracted to short-term lets because they’re concerned about debt respite schemes, eviction bans, and the possibility of being stuck with AST tenants that can’t pay their rent? However, modern trends suggest otherwise.
Today’s consumers want ever-increasing speed and flexibility; so once the pandemic has passed, and travel takes off again (literally), we’d expect short-term lettings to gobble up even more private rented stock. How agents respond to this challenge will be key.
Having said that, it’s clear the Airbnb model won’t be for every landlord and it certainly won’t be for every letting agent. Some landlords will always value the security and stability of an AST and won’t want to expose their property to multiple tenants who may or may not treat it well. Meanwhile, the high turnover of tenants will inevitably create more work for agents. It takes time and effort to arrange regular cleaning and linen washing.
For those keen to dip their toe in the Airbnb water, however, it will surely help that letting agents already have experience of helping corporate clients secure short-term lets as an alternative to hotels. Therefore, even if we eventually see a convergence of the lettings market with hospitality and tourism, the transition should be a relatively simple one for agents to make.