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Should you invest in holiday lets in cities to ride the staycation wave?

Visitors at Edinburgh Castle stand in socially-distanced circles to watch the daily gun ceremony in August - Jane Barlow/PA
Visitors at Edinburgh Castle stand in socially-distanced circles to watch the daily gun ceremony in August - Jane Barlow/PA

In this two part series, we are investigating how coronavirus has affected Britain's short-term lettings markets. First, we looked at the growth in the rural sector. Here, we will analyse what the pandemic means for investors in city markets

Coronavirus has divided Britain’s short-term lettings market into distinctly opposite halves.

Travel restrictions and quarantine measures mean rural holiday homes are benefiting from a staycation boom.

In cities, however, the pandemic has destroyed consumer demand. Domestic interest in city breaks has shrivelled and many international tourists are not able to travel.

VisitBritain has forecast a 73pc drop in inbound tourism in 2020 – equivalent to a loss of £24bn in spending.

Before coronavirus, London and Edinburgh were the biggest short-term lettings markets in Britain with year-round demand.

Glenn Ford, of Edinburgh Self-Catering, a holiday lettings company, said: “Properties, especially in the city centre near the Royal Mile were occupied for 90pc of the year. You would earn 1.5 times what you would earn from residential letting.”

Now that everything has changed, are these cities no-go zones for investors?

London

Ana Freccia runs YourHouseLondon, a property management agency. Before the pandemic, she was managing 22 properties with a total of 120 rooms which she let out via a combination of short-term leases and Airbnb.

“In the first two weeks of the pandemic, 30pc of our clients left the properties,” said Ms Freccia. Future bookings were cancelled.

During lockdown in June, the total number of homes booked on Airbnb in London was 3,922 – a tenth of the number in the same month in 2019, according to AirDNA, a data analytics company.

Ms Freccia halved her portfolio and moved all of her remaining properties onto the longer-term lettings market. Her income on these properties dropped by 40pc.

Other landlords followed her tactics. In July, the number of entire home listings on Airbnb had shrunk by 26.8pc compared to the same month in 2019, according to AirDNA.

Short-term lets flooded the rental market. In zones one and two, between May and July, 12pc and 9.3pc of rental instructions were previously short-term lets, according to Hamptons. In the London Borough of Lambeth, the share was 17.2pc.

Ms Freccia’s advice is to stay versatile. “People who manage their properties 100pc via Airbnb, they had to close down,” said Ms Freccia. “You always have to have a second option, a plan B.”

In July, when non-essential British travel was given the green light, the total number of booked entire home listings in London was 20,058 – an 80pc jump on June, but still only half the number in the same month in 2019.

Social distancing has hit private room bookings harder. There were 7,542 in July, only a third of the level seen last year.

Now, employees are slowly returning to offices part-time and are looking for short-term accommodation, said Ms Freccia. But the tourists are still nowhere to be seen.

Edinburgh

As in London, coronavirus slammed Edinburgh’s holiday let market. The large booking sites such as Airbnb overrode non-refundable booking policies and landlords had to give cancelled holiday makers their money back. “We were inundated with desperate calls for cancellation,” said Mr Ford.

Then lockdown brought a desert of bookings. In June 2019, there were 6,588 entire homes booked for stays on Airbnb in Edinburgh, according to AirDNA. In June 2020, that number plummeted to 519.

As in London, landlords moved properties onto the long-term market. The number of entire homes listed on Airbnb dropped by 43pc year-on-year in June, AirDNA data shows. Since mid-May, former short-term lets have accounted for 16pc of all rental instructions in the Scottish capital, according to Hamptons.

In July, there were 3,581 bookings of entire homes on Airbnb – also roughly half the number in July 2019. But, considering that holiday accommodation opened later than in England, on July 15, Edinburgh’s pace of recovery has been stronger than London’s.

Overall for the year, Mr Ford estimates that his income will be down 80pc.

Mr Ford hopes that bookings will pick up towards winter. Already, last minute bookings are spiking as holidaymakers feel reassured that the city will not go into a second lockdown.

But the pandemic is not the only problem for local investors. London has a 90 day per year booking cap for entire homes and Scotland has plans to introduce a licensing system from spring 2021. Under the proposed scheme,  local authorities will be given the power to introduce controlled zones and review taxes on holiday lets.

“I think you’d be absolutely mad to think about investing in short-term lets in Edinburgh now, not because of Covid but because of the council,” said Mr Ford.

Have you recently invested in a holiday home? Let us know in the comments section below.