Tourism is Up, AirBnB’s are Up… But Why Isn’t My Revenue? June 2024 Vacation Rentals Report Introduction With the increasing number of AirBnB properties entering the vacation rental market, many property owners, particularly in Cape Town, South Africa, are left wondering about the future prospects for their investments. As a Cape Town-based property management company focusing on the Muizenberg area, we at MUi STAYS are frequently asked about the future of AirBnB in this region . Why Muizenberg? Muizenberg stands out as the most affordable town on the South Peninsula of Cape Town, offering excellent surfing conditions year-round for all levels, from beginners to kite surfers. The community here is vibrant, with a strong local culture that’s intimately involved in community development projects. It’s the modern traveler's ideal destination. Our Approach: MUi STAYS employs a market-driven approach to property management, leveraging advanced AI-driven market software and a dedicated team whose livelihoods depend on it. This combination allows us to optimize returns for our clients using real-time data and insights. A tech-savvy approach to property management. Current Market Overview Despite the increase in tourism and AirBnB listings, revenue for property owners has declined in recent months. Here are some insights into the factors influencing this trend: Post-COVID Property Shift: Investors moved their money to safer assets in Cape Town, increasing the number of short-term rental (STR) properties by over 6000 in 2022/2023 alone, according to AirDNA™. This shift was driven by the perception that Cape Town offers a more stable and attractive investment compared to cities like Johannesburg and Durban. Tourism Demand: Recent data from WESGRO shows that international tourists in the 2023/2024 season exceeded pre-pandemic levels, with 2.8 million visitors compared to 2.6 million previously. However, local visitor numbers have dropped significantly, from 8.3 million in 2019/2020 to 5.9 million last season, impacting overall demand and spreading fewer visitors over an increased number of rental properties. STR Income Trends: In 2022, STR rental incomes spiked due to post-pandemic revenge travel trends and a lower supply of available properties. The trend continued into 2023 when the market began to saturate as more properties became available. This trend has contributed to the recent decline in rental incomes. Key Challenges in 2024 The first quarter of 2024 has missed expectations and forecasts for several reasons, and here are some as I see them: Local Visitor Decline: Despite an increase in international visitors, the significant drop in local visitor numbers has strained the market, with 23% fewer visitors spread over 20% more properties. It’s like organizing a massive braai but only your vegan friends show up. Early Winter: An early Easter led to an unexpected early start to the low season. Many establishments, including ours, were unprepared for the sudden drop in demand, resulting in a record low for April. Election Uncertainty: Both local and global elections have created economic uncertainty, affecting travel plans and market stability. The South African election particularly impacted the market, with a noticeable drop in bookings towards the end of May. When the votes are being counted, tourists prefer to stay home. Future Outlook for 2024/2025 Looking ahead, several market forces are expected to shape the vacation rental market. While this is not an exhaustive list and many other factors come into play, these are some of the more major trends impacting the market at the moment: Positive Election Outcome: The positive result of the South African GNU election is expected to boost foreign investment and strengthen the Rand. A stronger Rand could attract more foreign visitors but may slightly dilute spending power for international tourists due to currency exchange rates. Global Inflation Correction: Inflation correction globally may increase the attractiveness of South Africa as a travel destination. The high cost of living in countries like the UK, where a burger and beer is approaching R1000, makes South Africa a more appealing and affordable option for travel. Ongoing Elections: Continued election uncertainty worldwide, with 64 countries holding elections this year, some of them significant source markets, may negatively impact travel demand as people tend to stay home during such times. This uncertainty can be likened to mini lockdowns, reducing overall travel activity. Interest Rate Decreases: It is widely anticipated that interest rates will be cut. The lower interest rates are expected to boost property investment, with a potential shift towards long-term residential rentals due to the ongoing housing crisis. Lower borrowing costs will make STR rental returns more appealing, but it will most likely have a far more significant effect on the longer-term residential rentals and home ownership market. Think of it as a happy hour special for home buyers—lower rates, higher spirits! The Housing Crisis: The current housing crisis has made finding rental accommodation increasingly difficult, driving investors to consider long-term residential rentals over short-term vacation rentals. This shift may positively impact the short-term rental market, as more properties become available for long-term tenants, creating less competition in the market. Shifting Geographies: Renewed hope for South Africa's economic prospects might lead to a shift in investment interest toward major economic hubs like Johannesburg, potentially slowing the demand of the Cape Town property market. Economic opportunities are the biggest migration influencer outside of war. Regulatory Uncertainty: Potential regulatory changes could impact the vacation rental market significantly. For example, regulations in other regions have limited the number of rental nights allowed, drastically affecting the market. Local regulatory bodies like Body Corporates may also start limiting the number of AirBnB licenses available in sectional titled complexes, affecting the investment landscape for vacation rentals. Conclusion: The vacation rental market is subject to various ebbs and flows, that all work to keep the market following the macro trend. While the long-term outlook is slightly positive (we still need to see what the GNU can deliver), the short- to medium-term could see further volatility and lower AirBnB incomes. Investors may shift toward more stable investments, but we expect a renewal of interest in the STR market in the medium to long term.