The COVID-19 coronavirus pandemic is a game-changer for the vacation rental industry.
The onslaught of negative headlines and uncharted territory has many vacation rental managers fearing for the life of their businesses. At Hostfully, we are seeing this first hand.
Travel restrictions, border closures, “social distancing” and general anxiety by potential guests are bringing travel to a standstill.
Indeed, the vacation rental industry has seen a massive spike in cancellation requests - both on the major booking platforms and on the direct booking sites.
Showing the bad for the greater good
Illuminating the current reality with data can help us all understand exactly how much pressure our industry is under.
We hope this will help leaders and decision-makers make better decisions about how to survive in the short run and thrive in the long run. Here are the facts:
Cancellations are up dramatically compared to the previous year (2019):
- March: up 534%
- February: up 377%
In 2019, cancellation rates for bookings in January, February, and March, were 8.3%, 7.1% and 5.2% respectively.
This year, for those same months, those cancelation rates rose to 17%, 27%, and 28% respectively for January, February, and March.
Reservation rates are down 70 points compared to 2019.
In 2019 reservation rates between February and March increased by 45%. In 2020, reservations dropped by 30%.
- Vacation rental bookings down 80% (PriceLabs)
- Weekly Airbnb revenue in NYC for December is down 77% (AirDNA)
- Hotels are now sitting at 22% occupancy as of the last week of March, down from 80% during the same period last year (NREI)
With this type of data rolling in, it’s hard to not be discouraged. But there is some economic stimulus on the horizon.
United States CARES Act
Vacation rental businesses are the backbone of local tourism industries across the globe. As we slowly get ready to (hopefully) open up again, encouraging travel, tourism, and experiences will be a much-needed boon for local economies everywhere.
Supporting the vacation rental industry now is critical. Here are the programs available.
PPP (Paycheck Protection Loan Program)
The Paycheck Protection Loan Program (PPP) is a $349 billion loan and loan forgiveness program for small businesses—including vacation rentals—who have W2 and 1099 employees and payroll.
The goal of this program is to help small businesses retain employees during the COVID19 pandemic. The PPP program is administered by the Small Business Association (SBA) and loans will be processed through commercial banks (see here for the most active SBA lenders).
If you have employees you want to retain, this program will grant you a loan to cover 2.5 months of payroll, of which two months will be forgiven (up to $10 million).
So far, the program application process has been challenging for the banks and SBA to administer. We hope that this resolves soon.
EIDL, SBA Bridge Loans, and SBA Debt Relief
These are other programs that help to ease the financial burden of small businesses during this difficult time.
- Economic Injury Disaster Loan Emergency Advance
In response to the Coronavirus (COVID-19) pandemic, small business owners in all U.S. states, Washington D.C., and territories are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000. This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available following a successful application. This loan advance will not have to be repaid.
Enables small businesses who currently have a business relationship with an SBA Express Lender to access up to $25,000 quickly
The SBA is providing a financial reprieve to small businesses during the COVID-19 pandemic
SBA will automatically pay the principal, interest, and fees of certain loans for six months and loans issued prior to September 27, 2020
Specifically For owners
For those who own their vacation rentals, there are also several provisions specific to real estate holdings that may provide a reprieve.
Property owners can now carry back net operating losses (NOLs) accruing in 2018, 2019, or 2020 for the five years preceding the NOL. The NOL deduction limit of 80% of taxable income was also increased to 100%.
Previously, non-corporate taxpayers were subject to a cap for deductible business losses. The CARES Act removes this limitation, allowing non-corporate taxpayers to deduct all losses starting in 2018 through 2020. Retroactive claims are allowed through tax amendments.
Policymakers need to continue to address challenges
Experts predict this week and next will be the worst in the U.S., and new case reports are slowly decreasing in hotspots like Italy, Spain, and the U.K. We are also looking ahead to multiple waves of this pandemic affecting global travel.
As things return to some semblance of normalcy, decision-makers at the local, state, and federal levels need to take action to reduce the severe impact of this crisis on the vacation rental industry.
Some good news
A few trends that are emerging that will propel our industry forward. First, the cleanliness of vacation rentals is at the forefront of travelers’ minds.
This new focus helps to highlight the advantage that vacation rentals have over hotels in terms of reduced guest traffic.
It will be up to vacation rental providers to rise to the task of being more specific and transparent about their cleaning practices. Many top vacation rental companies already do this well and more can follow suit.
Secondly, automation and guest messaging have become more important.
When situations are constantly changing, communication is especially critical. Property managers are leaning harder on software tools that help them stay in touch with guests and automate the important business processes that keep the company running smoothly.
Finally, some companies in the vacation rental industry are banding together to share thoughtful and positive messages. One campaign seeks to show travelers how vacation rental property managers are getting ready for their return, whenever that will be.
Despite these challenging times, there is a shared belief that the vacation rental industry will come back, and when it does, it will be even stronger than before.