Market Update: State of Kelowna's Vacation Rental Market Part 1
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As the weeks pass, everyone is still trying to figure out which way the wind's blowing. Economists can't seem to agree on much. This likely isn't the first time you're hearing this, but the probability of a global recession is anticipated, and we are starting to see a snowball effect across all markets.
In our local vacation rental industry, we experience some seasonality and demand from summer to fall/winter is always a significant drop-off. However, this Q4 is rough, so we have to consider some meaningful supply and demand dynamics in this current climate.
Airbnb Inventory in Kelowna
There was a lot of growth in the vacation rental marketplace, and accommodation sales are up. A massive wave of new hosts entered the industry in 2020 and 2021. They are now startled that 2021 record breaking numbers are not the norm. So they're starting to lower their rates in a race to the bottom. Supply grew faster than demand, which caused overall occupancy to decline, and this spread means everyone is seeing their bookings and revenue go down on average.
The number of short-term rentals in Kelowna has increased significantly. This year we saw over 60% of home sales in the Okanagan go to investors. Many of which became furnished rentals for the short-term and mid-term market.
Listings on Airbnb have hit all-time highs. Over the last three years, data shows Kelowna offered between 1000 to 1600 short-term rentals advertised, depending on the time of year. This summer, we had nearly 2400 active listings in Kelowna alone!
With interest rates continuing to rise, investing in short-term rentals will become less attractive. That should result in the supply growth rate slowing, which means that this oversupply could be temporary. There is a widening gap between amateur and smaller-time hosts and professional hosts with differentiated properties. Very few smaller operations will survive this ebb, and I am already seeing these properties trickle onto the MLS as people pull back or exit the market.Long-Term Rentals in Kelowna
With the latest legislation changes in BC removing rental restrictions in all Stratas, there will be an increase in rentals moving into the market. Unfortunately, the vacancy rates are only reported once per year, but we will see a rate increase from what I am witnessing. Monthly rentals on the long-term market sit for months, along with massive rent reductions. I even see landlords offering tenants one free month to secure a contract.
The silver lining for the mid-term rental or furnished rental market looks promising. Because the housing market has slowed, we could see homeowners looking to sell and rent while they wait to buy again at a lower price.The Economic Uncertainty
Travel demand will be reduced even further in the months ahead as high inflation and interest rates eat at consumer spending power. We are in some tough economic times, and tourism has always been particularly vulnerable and the first affected by economic downturns.
In a recent article by Global News, Why Canada's short-term rental hosts are in for a harsh winter, Expedia, which owns Vrbo, and Bookings.com said in recent filings that near-term "uncertainty" meant they couldn't accurately forecast how many bookings they'd see over the fall.2023 Outlook for Vacation Rentals in Kelowna
I regularly speak with local and international industry professionals, and we all feel that future forecasts are impossible to predict right now.
Over the past 18 months, I have built a relationship with a large firm on the east coast that has become our largest client and is currently servicing about 30% -35% of our occupancy. Many of these guests are here for fixed terms for work or relocating for work and looking for housing. We are hyper-focused on seeking more of these fruitful partnerships to service mid-term stays in the area. A recession will impact the vacation rental industry, and we may be feeling the pinch now; Kelowna remains one of the most desirable markets in Canada. No surprise that Kelowna ranked the second-best small city in Canada, and travellers will always come, regardless of gas prices.
If you have a longer time horizon on your investment property, you will likely realize significant equity in your home. If we can weather the storm, the short-term rental business will return when consumers feel they can take their vacations again. The dust needs to settle first.Conclusion
Recessions don't scare me. In this industry, we face so much adversity. From natural disasters, economic rollercoasters and health crises, grit must be activated. Unfortunately, there is more downside ahead, and we are far from out of the woods yet but we are doing everything we can to be among the winners! At the end of the day, many more people have been exposed to our way of travel accommodations, and they are loving it!
Part 2 of this article is reserved exclusively for our active clients and will include an in-depth list of strategies and emerging trends to brace against these economic headwinds.Do you like what you see here? Sign up below to receive more market updates and insights from us.