High-End Vacation-Rental Spots Face Changing Market Post-Covid
During the pandemic, many vacation homes became primary properties, as the affluent opted to leave cities. And those who didn’t own, rented, often at astronomical rates.
But what’s ahead? Below, a look at what’s in store for buyers, renters, and sellers in some key vacation markets.
Forecast for Luxury Vacation Rental Prices
Real estate agents from across Sotheby’s International Realty weighed in on what they expect from the high-end market outside cities in 2023.
Source: Sotheby’s International Realty Luxury Outlook 2023 Agent Survey
Aspen/Snowmass Village, Colorado
Because high-occupancy rental areas in core ski-access properties in Aspen and Snowmass Village, Colorado, are condo-hotels (condo buildings operated as hotels with a front desk and reservation department), or hotel-condos (operated as full-service resorts), rising rental rates played out differently than in other areas of the country.
Because the units don’t qualify for traditional financing—buyers typically can get only adjustable-rate mortgages that have fixed periods of just five to seven years—a large portion were purchased with all-cash or with a very low loan-to-value ratio.
“During the first two years of the pandemic, the rental rate escalated, depending on the area, around 40% to 50%,” says Will Burggraf, broker associate, Aspen Snowmass Sotheby’s International Realty. “A large reason for that surge was increased demand but also an initial large reduction in rental properties. At the beginning of the period, a lot of people sold their rental properties and reduced inventory significantly. The price of the properties has increased to a point that the rental return for most properties is about 1.5% to 3%, depending on the area and property type.”
Since 2020, the firm’s exclusive rental listings have increased around 20%, and lease dollars have doubled.
“We continue to have requests for high-end rentals,” Burggraf says. “In 2020, we had one rental listing available at US$100,000 per month. Now we have 10, and they are being rented.”
Burggraf says renters, whether they are high-net-worth individuals or celebrities, will continue to book places in Aspen and Snowmass Village because of skiing and its unparalleled amenity-heavy “bespoke experience.”
Buyers, he adds, will always be lured by the area’s “proven track record to be resilient to down-market trends,” which makes it a “good long-term investment to park money and have an asset you can use, rent, and depreciate for tax purposes.”
Increase in exclusive rental listings for Aspen Snowmass Sotheby's International Realty
The Hamptons, New York
In New York’s Hamptons beach communities, rental prices, as well as sale prices reached record highs during the pandemic.
“The market is still very competitive because inventory is still at historic lows,” says Dana Trotter, senior global real estate advisor and associate broker, Sotheby’s International Realty – Bridgehampton Brokerage. “But we expect the market will settle out as more listings come online.
“While there will be turnover, many owners will hold because they want an asset to use in the Hamptons regardless of fluctuations in rental pricing.”
Lake Tahoe imposed restrictions preventing non-owners from coming to the region during the early months of the pandemic that unwittingly enticed buyers.
“Real estate ownership was your only passport to visit and vacation in the north Tahoe area,” says Breck Overall, broker associate, Sierra Sotheby’s International Realty. “As rental restrictions lifted in June 2020, rental rates rose 20% to 30%.”
Noting that additional rental restrictions on single-family houses and condos were enacted in 2022, Overall says that “this has fueled the continued interest in buying real estate.” The new rules, however, have made it difficult for prospective buyers to make incomes on their properties. “This has deterred some people from making purchases,” he says. “However, given people’s flexibility with working remotely, owners are typically using their homes more often than we saw pre-Covid, which is helping offset some of the loss in demand from buyers who had planned to rent out their Lake Tahoe properties.”
Given the market’s lack of inventory, Overall doesn’t believe rental prices will decrease any time soon, even though there has been a slowdown in sales.
“ I would describe our current market as, ‘sellers are mentally still in 2021, while buyers are anticipating 2023 pricing."
Breck Overall Broker associate, Sierra Sotheby’s International Realty
The pandemic brought a sea of change in the rental market in the Caribbean island-nation’s uber-luxury-sector destinations of Casa de Campo Resort & Villas and Sanctuary Cap Cana resort, with short-term leases turning into long-term tenancies of up to six months.
According to Carolina Murphy, luxury rental coordinator, Dominican Republic Sotheby’s International Realty, rental prices it tracked fell about 35% during 2020 and 2021, then rebounded in 2022, slightly outpacing pre-Covid rates.
“A villa that regularly charged US$3,000 a night lowered the price to US$2,200 to attract customers,” Murphy says, adding that today, prices are up at least 40%, “because some owners used the pandemic time to upgrade their properties.” Now, with high demand, owners can get almost twice as much per night, just 12 months later.
Although inventory at Casa de Campo has been increasing because of new construction, so has pent-up demand from purchasers.
Most of the villas are used primarily for recreational, not investment, purposes. “In 80% of the villas, rental money is just a small resource to contribute to the expenses of the property,” she says.
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