Short term rental market described as having potential for property investment

The supply of short term rental accommodation is not meeting a new demand from companies who are relying more on sort term employment models, according to a new real estate report.

It means that those investing in the short term market in cities with demand in the sector are in line to reap the economic benefits, according to the Global Cities 2016 report from international property firm Knight Frank.

It says that short term assignments are forecast to grow to over a fifth of all international relocations in the three years to 2017 meanwhile, long term assignments are expected to fall from 52% to 45% over the same period.

However, supply of short term rental accommodation is struggling to meet demand in many established markets and the situation is compounded by the fact that short term lets often fall into a legal grey area. ‘Against this background, those cities that embrace the short term rental model stand to benefit in the future,’ the report points out.

‘For investors and landlords, there are clear long term rewards in the world of short term rental accommodation. Cities that embrace the flexibility of models like serviced apartments will reap the economic rewards,’ it adds.

The research also shows that worldwide, the number of serviced apartments has grown by 80% since 2008 to over 750,000. The trend looks set to continue with the number of apartments increasing by as much as 18.2% between 2014 and 2015.

The United States accounts for 61% of the world’s serviced apartment locations, followed by Europe at 17%, Australasia at 11% and Asia at 5.5%. The fact that demand exceeds supply puts upwards pressure on occupancy levels with nearly three quarters of global operators reporting a year on year increase.

The report describes the private short let market as a potentially lucrative option and says that the reward from higher rental values, which are typically double those in the long term market, is balanced by the greater risk of void periods. However, private lets below a certain period of time are restricted in many key markets around the world.

It also points out that while lets of less than 30 days are a grey area in New York for example, this has done little to diminish the growth of online short term accommodation providers like One Fine Stay and Airbnb.

Despite many companies favouring serviced apartments for reasons of transparency and uniformity of service and quality, Airbnb is increasingly targeting corporate travellers and aims to grow this side of its business which currently accounts for 10% of stays.