Like everything else, the short-stay city-break rental market that was turbocharged by the arrival of Airbnb is dead right now, but you could argue that the holiday rental business is better placed than hotels when tourists start travelling again, and the coronavirus crisis could create a window of opportunity to buy bargains that will rent well after the crisis has passed.
After almost two months of lockdown, you have to assume that most tourist rental flats in cities like Barcelona, Valencia, Palma de Mallorca, Malaga, and Seville are sitting empty right now, just like hotels.
That might be fine in the case of second-home owners who dabble in the holiday-rental market when not in residence, but it’s a disaster for short-stay investors who rely on rental income streams to cover their costs, especially if they are leveraged. I assume quite a few people have borrowed to buy short-stay rental investment properties in cities like Barcelona.
What do you do when your tourist clients disappear from one day to the next? Look to the long-term rental market in desperation, perhaps?
A market-watcher called James who reads this blog told me he has seen a surge in the number of fully-furnished flats advertised for long term rent in Barcelona, with worrying implications in the short-term.
“Have you noticed how the % of flats in Barcelona on [property portal] Idealista that are amueblado [furnished] has gone up massively?” he wrote in comments to this article on banks forecasting 6% decline in Spanish property prices and two-year recovery. “All those airbnb tourist flats have been dumped on the long term rental market. That’ll crash the rental market and I’d guess force some stressed sales for people that go into negative equity on their investment property. That will in turn flood the buy/sales market even more… Give it a few months and i think it’ll crash… at least here in Barcelona.” James very kindly went on to give me data to support his argument.
There is such a structural shortage of housing in Barcelona that I’m not sure an increase in long-term rentals will crash the market, though it will put a lid on rental price inflation, at least for now. However, if James is right, there will be some good bargain properties for sale in Barcelona over the next six months, or when the market gets going again.
I don’t doubt there will be some distress, but in cities like Barcelona and Palma, I can’t see it lasting as long, or bitting as deep, as the aftermath of the financial crash of 2008, which ended up in a zombie-zone dragged out by bad policy and banks for years between 2010 and 2015, where you could buy prime property below replacement costs, meaning the land was free. This time around, if you see land being given away for free with a property in Barcelona or Palma, buy it! I’ll be reporting on how prices evolve in key markets like Barcelona, Palma, Ibiza, Marbella, & Valencia over the next few months.
Short-term rentals suit social-distancing
You can argue that short-stay tourist rental flats will be well positioned to take advantage of the recovery, when it comes.
One assumes that social distancing measures will be in place for the foreseeable future, which is a challenge for hotels where staff interact with guests. Also, the high cost structure of many city hotels will struggle to work when tourists start to visit again.
Aparthotels, and tourist rental flats, on the other hand, are better suited to the Covid-19 world of keeping away from other people.
The same is true of holiday rental villas on the coast. They will be more attractive than hotels when tourists start to go on holiday again.
I expect a lot of hotels in Spain will go out of business, reducing choice and competition, and pushing demand towards holiday rentals. See my recent article about hoteliers in Mallorca lobbying for change of use to residential for many hotels with no future after the coronavirus crisis.
So tourist rentals in cities like Barcelona could be well placed when tourism starts to recover, and a good investment if you can find a bargain with a tourist rental licence in the distress when the market starts to move again. Just be sure you understand the local regulations on tourist rentals, which can be very restrictive in cities like Barcelona and Palma de Mallorca.