In this post, I’ll be discussing the contributing factors to occupancy and how it relates to holiday let properties using short term rental sites as a marketing medium.
Location plays a very large factor in determining the seasonality of a rental property. If we look to compare Camps Bay, CBD and De Waterkant, for example, we see an interesting parallel between occupancy and ADR (Average Daily Rate).
Being located in the CBD, one tends to attract a lot of businessmen attending conferences and conducting meetings, here we tend to have a more consistent booking occupancy through the year.
This generally comes at the expense of ADR due to the location and the size of most of the units in the area. On the other end of the spectrum, Camps Bay is highly seasonal. In what I like to call high-peak ( 18 December – 7 January) one can get anything form R13000- R18000 per night for a 3 bedroom unit whereas, in June, you are struggling to sell the same unit for R3500. That’s less than 20% of the high peak rates but when looking to boost overall revenue for the year, this is what needs to be done in the area to attract customers.
De Waterkant is a happy medium of the two, being close enough to the CBD to attract the business traveller yet still giving the holiday traveller the feeling of being on vacation as a result of the relaxed environment, cafes and proximity to the V&A and other attractions. It tends to yield a higher ADR than CBD properties and without the volatile troughs and peaks that effect Camps Bay.
Is bigger really better?A simple lockup and go unit is low on maintenance, quicker to clean, quicker to turnaround, less wear and tear in common areas, lower setup cost and cater towards the highest percentage off guest arrivals according to Airbnb. This sounds like a no brainer so far, so what are the tradeoffs?
Well firstly from a Cape Town standpoint, there are simply too many studio/ one-bedroom units on the market with 2500+ new units due to come onto the market in 2019 alone. We now have an excess supply with not enough demand, a lot more second homeowners who are just looking to cover the cost and as a result lower prices to an unsustainable level for any PM/rental company to compete with. What was selling for R1100 R1300 per night is now not even selling at R800 with most one bedrooms being priced between R500 – R700.
Let’s paint a picture:
You get a booking for 5 nights, that’s a pretty solid booking for a one-bedroom unit and it sold at R650 (based on the current market) per night with a cleaning fee of R400 and your PM takes 20% commission on bookings.
The booking breakdown looks as follows:
Booking total R 2600 Cleaning Fee: R400
Due to owner: R2080 + R400 cleaning due to PM: R520
You would be lucky to clear more than R12000 per month at that rate, so how do two or three-bedroom units compare?
Again speaking from my knowledge and watching the market over the last 5 years, the price for a three-bedroom has hardly been affected. In the winter month’s the price hasn’t changed at all with good occupancy and the high peak rates increasing by up to 30%. Two-bedroom units have seemed to remain consistent throughout the year on pricing and this is taking the current maco environments into account as well.
It goes without saying a lowered nightly rate will increase your occupancy at the expense of wear and tear. I would advise you to start with a lowered rate to increase the credibility of your profile with a lot of reviews and then slowly increase your rates to find the medium between occupancy and ADR. I have found some owners prefer a higher ADR to maintain guest “quality” and protect their investment though I can’t really say I have seen any difference between someone willing to pay R2000 pn or R6000 on.
The macro-environment is where we have very little if no control over and can have a massive impact on guest arrivals in general.
If we look at the political landscape, policy changes such as the need for all international arrivals to produce an unabridged birth certificate when a minor is travelling caused our Chinese arrivals to plummet. Why? Well simply put, they don’t have the document! I’ve heard stories of family members having been left behind because of missing documents or uncertainty at the departure terminal. This can turn a relaxed family holiday into a nightmare, not something that promotes South African tourism.
South Africa is getting expensive for tourists? Who would have thought, with the rand to dollar sitting at R14,85 as I write this? But this is most certainly something that is getting more traction amongst returning guests. Cape Town, in particular, has been labelled at inflating prices and there is a myriad of other economic factors that can and are affecting our tourism market and the number of international and local guest arrivals to our beautiful city.
What are your thoughts on the current market, are your findings the same?
I hope some of these topics help guide you and please feel free to ask if you have any questions or ideas you want to share.
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