Safe as Houses

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Airbnb hosts turn to long term renting as their only solution

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What happens when the world’s biggest hotel turns off overnight?

South Africa is reported to have over 50,000 Airbnb hosts. Airbnb stock is now flooding the long term rental market as the travel market continues to be in a pandemic induced standstill position with travel bans expected for the foreseeable future. Airbnb CEO Brian Chesky summed up the market best when he announced that they will retrench 25% of their workforce as a reaction to the projected drastically reduced demand for the foreseeable future.

The Natural Fallback Position

Hosts rely on Airbnb for their rental revenue which covers their bond, levies and other property expenses. With that revenue now gone, they have no choice but to turn to what their properties were originally created for — long term housing. Unlike traditional operators, hosts are very fortunate that they have such a natural fallback position given that their properties generally all have kitchens and other features expected from residential tenants. Many hosts are now gearing up for their post lockdown strategy and listing their properties on rental portals to get access to the long term market.

An unprecedented over supply shock to the market

Tens of thousands of ex-Airbnb properties coming onto the market, will create a substantial oversupply especially given the likelihood of reduced tenant demand due to the exponential rise in unemployment levels. The market being oversupplied means that tenants can now find cheaper deals so they will see this an opportunistic time to move and enjoy far better value for money.

Attractive value for tenants

A price war has emerged. Rental rates are moving down as landlords compete for the remaining quality tenants searching in the market.

Tenants can move easily due to the CPA clauses in their leases which allows them to exit their lease early when they decide they want to leave. Many tenants will be looking to trade down into cheaper accommodation in an attempt to save money on their rent which is their biggest household expense. Some tenants will also look to share with friends to split their rent.

What does the future look like

With significantly more stock on the market and less tenants who can easily afford their rent, landlords are competing for limited demand. Almost all tenants use searching online on platforms like Flow, Private Property and Property24 as their primary way to find their rental.

We expect these platforms to become more inventive and to start offering ways for landlords to set their rentals apart given the high levels of competition.

Looking ahead into late 2020 and beyond, some landlords may revert back to Airbnb once the travel market recovers but for now the message from SA Tourism is that there will be no domestic or international travel market for 2020.

With this bleak travel picture in front of them, we expect this market shift to continue climbing steeply as landlords search for a way to navigate through this storm.