BY Chris Prasad
The growth in demand for short-term rental options coincide with the fact that companies today are engaged in more cross border business than ever before. This globalised outlook will see the growth and expansion of many new companies seeking to gain a foothold in fresh markets, and as such, they are exporting their services and products with the added value of personnel with the relevant expertise, leading to increased demand for this type of accommodation.
On the other end of the scale, large multinational firms are cutting back on long-term assignments for senior management personnel, as modern technology has now allowed vital management functions to be conducted from a single regional or global centralised location. This also allows for cost cutting measures.
According to global real estate consultancy Knight Frank LLP, there has been a marked increase in short-term assignments among multinational companies in recent years, and the forecast is that it will grow to over a fifth of all international relocations by 2017.
The firm’s annual Knight Frank Global Cities Report, also found that long-term assignments are expected to fall from 52 per cent to 45 per cent in the same period.
However, the supply of short-term rental accommodation is currently struggling to meet the existing demand in many matured property markets in the world, and the situation is compounded by the fact that this type of property often falls into legal grey area. However, cities such as Kuala Lumpur, which have already embraced the short-term rental model – in the form of serviced apartments and such – stand to benefit in the future.
“For investors and landlords, there are clear long-term rewards in the world of short-term rental accommodation, therefore cities that embrace the flexibility of this model will reap the economic rewards,” said Knight Frank’s head of London Residential research Tom Bill.
Highlighting the economic benefits, Bill said submarkets in London and New York have seen significant increases in rental values. New York’s East Village witnessed 26.5 per cent growth, while West Village saw an average increase of 18.05 per cent between 2014 and 2015.
Meanwhile, in London, prices in St John’s Wood have increased by 11 per cent, followed by Marylebone by 8.8 per cent and Hyde Park by 8.5 per cent.
The Global Cities Report identifies three key types of short-term rental trends that are picking up in pace and have the potential to generate higher returns:
The number of serviced apartments has grown by 80 per cent worldwide since 2008, with over 750,000 made available in major global cities today. In the 2014-2015 period alone, the global percentage increased by 18.2 per cent.
Despite this, Knight Frank evaluates that demand still exceeds supply and this has put pressure on occupancy levels with nearly three quarters of global operators reporting year-on-year increase. With such strong occupancy rates, it comes as no surprise that more and more hotel brands are now moving into the serviced apartment market.
Private short-let market
While potentially lucrative, there are also drawbacks with this option. Privately owned properties can be leased out on short-term for much higher rate, typically double that of long-term monthly rates, but this is balanced by the risk of void periods. With the lack of a specific service or brand to benchmark against, this option is also considered risky by certain business institutions which generally appreciate a more methodised billing system.
This has been a controversial form of short lease, as lets of less than thirty days are a legal grey area for some cities – such as the situation between AirBnB and New York City. However, this has done little to diminish the growth of online short-term accommodation providers.
Despite many companies preferring the transparency, uniformity and quality service of serviced apartments, entities such as AirBnB and One Fine Stay have been targeting corporate travellers.
However, market watchers warn that as this form of business grows, ensuring uniform branding and quality levels for short-term accommodation will be a challenge, particularly in emerging markets where the current supply levels are coming from a lower base.
For now, even hotel and serviced apartment operators are jumping on to the bandwagon by posting their properties on such sites, allowing them to take advantage of some operational and promotional cost savings.