I started my Airbnb journey during an industry peak. Vacation rentals gained tremendous traction in Australia, not to mention market share away from traditional short-term stays. The business model itself was also very attractive – I could be my own boss, make my own hours and choose my renters.
When the good times are rolling, you often forget (or ignore) the fact that it could turn very quickly. The COVID-19 pandemic marked that turning point, representing the largest existential threat in the vacation rental industry’s recent history.
Now that the proverbial dust has settled, I was curious in understanding the overall impact to the Australian vacation rentals market, and whether any long-term damage has been sustained.
The rise of vacation rentals (pre-pandemic)
Since the mid-2010s, Airbnb has been steadily growing its presence in Australia. Airbnb’s platform listed approximately 350,000 unique properties between 2016-2019. Further, new listings on the platform were increasing by nearly 2.5% per month during this same period.
Hotels cannot compete with the variety offered from vacation rentals. Not only could you offer different types of short-term stay (e.g. entire apartment, private room, etc.), but you could also list properties in remote and exotic locations. This has tremendous appeal to those tired of the uniform layouts of most hotel chains.
Furthermore, Airbnb’s introduction to the local market was very timely. During 2016, Australia’s average rental yields were declining. For example, in August 2016, the weekly Australian rent was A$481, down 0.5% from the previous year. Airbnb’s offer, which gave property owners a chance to earn a premium on their homes for shorter-stays, presented an attractive alternative to traditional renting options.
During Airbnb’s steady climb in popularity within Australia, it didn’t appear to face any serious threat. That was until March 2020, when its single-greatest challenge seemingly came out of nowhere.
COVID-19’s impact on vacation rentals listings
From a global perspective, Airbnb’s annual revenue for 2020 was US$3.65 billion, representing a 24% decline from the previous year. Unfortunately, Airbnb’s financial data does not provide segmented information by geography. However, the International segment (of which Australia is included) declined by 19% when compared to the previous year.
Australian listings sharply declined between April and May of 2020, when the overall system shock from the pandemic was greatest. For example, listings in Sydney declined by 14% from the same period in 2019.
However, as Australia began its road to recovery, so did the Airbnb reservations. In the last week of May, Airbnb reported that Australian bookings recovered up to 97% of pre-COVID levels. Furthermore, regional bookings have also contributed to Airbnb’s recovery, confirming a trend I outlined in an earlier post.
COVID-19’s influence in bridging the gap between vacation rentals and hotels
The COVID pandemic has emphasised that trade-off in cleanliness standards between hotels and vacation rentals. In fact, some commentators suggest that it may have tipped the scales back towards hotels, given their cleaning protocols and standardised safe distance practices. Further, unlike hotels, vacation rental companies like Airbnb cannot mandate a widespread cleaning policy overnight, as it would go against their ethos of allowing hosts to run their own properties.
Instead, Airbnb chose a phased approach. In April 2020, the company issued cleanliness guidelines to hosts. While not particularly groundbreaking, the company confirmed its intent to assure guests that cleaning standards are of paramount importance. As COVID-19 cases rose late in 2020, Airbnb adopted a more forceful approach, threatening hosts with removal from the platform if they didn’t comply with the guidelines.
The enhanced cleaning standards are also likely to bridge the pricing gap between hotels and Airbnbs. Prior to the pandemic, Airbnb nightly rates were typically cheaper than hotel rates. For example, the average nightly rate of an Airbnb in Sydney was A$140, compared to A$185 for a hotel. However, increased cleaning protocols suggest higher cleaning fees, which are ultimately borne by the traveller.
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While COVID-19’s impact on the vacation rental industry was significant, I do not believe it was catastrophic. There were ample signs of recovery during the latter half of last year and the start of this year. However, it is unlikely that bookings will return to pre-pandemic levels in the near future. This is at least not until cleaning standards are consistently enforced and guests regain trust in using short-term rentals.
The content outlined above was written, edited and published by the Lost Realtor. The author has over 20 years or real estate sales and investing experience in the Australian property market. He has held senior positions in Australian building companies, including being the General Manager of the residential sales division of Collier Homes. His qualifications include a Bachelor of Commerce degree and a Graduate Diploma in Building and Construction Law.