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UKAA Roundtable: Short-term rentals: an unrealised opportunity for Build To Rent & PBSA developments? Presented by Lavanda

Tuesday 4th June 2019

The UKAA and Lavanda invited members to a roundtable discussing opportunities in the short-term rental market.

Since Airbnb’s launch in 2008, the short-term rental market has exploded in the UK, with the site now boasting over 60,000 property listings in London alone and growing at a rate of 54% year on year. This trend is particularly strong in apartment buildings, with new residential developments driving a significant portion of new listings.

Whilst this allows residents an opportunity to reduce their cost of living by earning additional income from renting out unoccupied apartment space, the unregulated growth in activity poses a number of challenges to residential communities.

Our breakfast roundtable was presented by Fred Lerche-Lerchenborg , CEO of Lavanda, educating residential asset owners and managers around how to take control of the growing problem of illegitimate short-term rental activity. He was able to share examples of how industry stalwarts and pioneers alike are now harnessing legitimate short lets to unlock major value within Build To Rent & PBSA developments.

You are able to read the full write-up of the day here:

As the sharing economy continues to flourish, Lavanda hosted a roundtable discussion, diving into the emergence of short-term rentals, and the unrealised opportunity for PRS developments. Below is a short overview of the topics that were covered during the event.

Who are Lavanda?
Having started out as a B2C property management company, Lavanda rapidly evolved into a B2B software platform, now enabling BTR & PBSA landlords to optimise the performance of their portfolios with a comprehensive, compliant, flexible and fully-managed short-term rental solution.

What is happening in the market?
The travel, real estate, hospitality and sharing economy industries are rapidly converging as we evolve into a far more transient global society.
In the travel industry, we have seen Airbnb catapult to the forefront of the market, now boasting nearly as many rooms on their platform as Mariott, Starwood, Hilton and Intercontinental combined.

Working habits have also gone through a significant change recently, with more flexible mobile working increasingly becoming the norm. As a result, we have seen a sharp rise in mixed-use schemes and established players in the commercial sector now stepping into the residential market. The recent launch of a co-living brand by WeWork (WeLive) further blurs the divide between the way we work and the way we live.

Finally, the way we live has also been going through a significant change as people demand greater flexibility in their day to day life. With over 33,000 private room listings currently live in London on Airbnb, it is suggested that subletting on the short-term rental market is happening in 1 in 27 properties in the private rented sector. Looking specifically at build-to-rent, there are a number of striking demographic and geographic correlations between the typical tenant and the typical short-term rental guest/host.

How are players responding?
This theme of convergence is now shaping the strategies of major players across these different industries.

Short-term rental booking platforms have made significant investments in B2B solutions aimed at the multifamily sector to help drive their future growth. Airbnb have launched their “powered by” programme with Niido, which has seen them start to open home-sharing apartment complexes across the US. Similarly, Expedia recently completed the acquisition of Pillow and Apartment Jet, both platforms enabling short-term rentals within multifamily developments.

In the hotel industry, there have been moves to better understand and embrace the homesharing economy, with both Marriott and Accor announcing large investments in homesharing solutions. Furthermore, companies like WhyHotel and Sonder in the US are pioneering the idea of pop-up hotels within multifamily developments.

In real estate, the theme of convergence continues, with major asset managers now looking to the sharing economy for growth and innovation. Developments around the world are starting to be built with short-term rentals baked into their core strategy. Internationally, we have seen Brookfield invest in assets directly in partnership with Airbnb themselves. Meanwhile, in the UK things are just getting started, with The Collective now allowing single
day bookings in their co-living apartments and JLL & Aberdeen Asset Management are exploring a short-let amenity for residents by Lavanda, allowing them to rent out their apartments while they are away.

Challenges around embracing short-lets

Disruption to on-site staff

The first point raised was around the potential disruption to staff working in a development. There are two different models that can be adopted to combat this, the first being a professionally managed service, with specialist, third-party, short-term rental management companies managing the end-to-end operations. The second model involves short-term rentals being baked into the development from the start, with on-site housekeeping and concierge teams managing the service as part of their role.

AST comparison
The discussion then moved onto how net returns on the short-term rental market compare with normal assured shorthold tenancies, and whether they produce the 20-25% uplift frequently advertised. The general conclusion from the roundtable was that there is a significant uplift vs. ASTs, however, the % is completely dependent on both the location and the attributes of the property itself.

Impact on the valuation

The next topic discussed was whether increased income delivered by short-term rentals actually contributes to increasing the valuation of the asset when taking into account the associated risk and lack of guarantee. It was suggested that valuers will accept income delivered by filling voids between tenancies as an equivalent to income streams such as a broadband service.

Impact on the long-term housing supply

It was highlighted that BTR operators are experiencing pressures from the government to offer longer leases and therefore introducing short-term rentals would seemingly contradict this. The short-term rental programmes offered by Lavanda, however, do not remove stock from the long term housing market. By filling voids between tenancies with short-term
rentals it is simply using vacant stock to deliver an additional revenue stream. Furthermore, by giving residents the ability to sublet their home, it adds an additional level of flexibility to leases that actually encourages residents to sign for a longer period.

Resident subletting

The discussion then moved to the growing phenomenon of residents subletting illegitimately, and the issues and disruption this can cause. Instead of wasting resource trying to fight subletting, the most effective way of bringing it under control is actually embracing it. Allowing residents to rent out their home through a platform like Lavanda’s brings complete transparency into all activity and allows you to control building rules and compliance, ensure the correct insurance is in place and even benefit from a share of the generated income.

The opportunities

Lease up – monetise the stabilisation period. Occupying newly developed residential blocks from day one with high-yielding, short-term guests will unlock positive cashflow as long-term tenants are phased in and the scheme is stabilised.

Void fill – eliminating void periods between long-term tenancies. Monetising vacant units between long-term tenancies with high-yielding, short-term guests eliminates void periods whilst optimising revenues. This also allows for an additional level of flexibility, which can enable seamless transitions between long-term rental strategies, without bearing the cost of
empty units, or offering discounted rents in a rush to fill units.

Resident hosting – Allowing tenants flexible living via permitted short-term hosting. Long-term residents can opt into a configurable and controlled building program permitting them to sublet legitimately in exchange for sharing a percentage of the generated income.

Student summer – asset optimisation by monetising the student summer break with short-term rentals.

Visit website: getlavanda.com