How did monthly rentals do in 2022?

First of all, I think that altogether we? should find a proper way to address the “monthly rental housing market”... Among all the? options like midstay market midterm housing, corporate housing or temporary stays… none seem to have become the master word? like we’ve created on the STR market or for the long stay market.

Wording aside, there are other big question marks around this market? that 2022 have arisen and are still unsolved. Consequently, this (still) immature segment has a more volatile performance than others and furthermore it makes things go faster than in the rest of the real estate division.

In this post I’d like to go over? supply challenges, demand drivers and a personal forecast for 2023 based a little bit on the latest trends shown in the industry.

Supply Challenges

2022 started with, unfortunately, some Covid outbreaks throughout Europe and that kept tourism still on low levels and therefore prices were still quite relaxed and most of the short stay supply was still active on monthly rentals at a reasonable rates. However, as the year passed, many macro and micro scenarios changed and that heavily affected the market

1- The War

Besides all the human and economic destruction that any military confrontation situation imply, the conflict on Ukraine stressed the inflation development and we immediately saw a spike in rent prices due to utilities becoming more expensive.? That immediately inflated the cost of the supply base (specially from professional operators) and shown rent increases of +20/+30/+40 vs December 2021.?

2- Big landing of serviced apartments living/microcoliving/coliving? in Europe

Most of these projects were paused during Covid and the rapid economic growth experienced after the pandemic threw loads of assets into the market. More than 20.000 units have been deployed or have been under construction? in Europe in 2022 grouping serviced apartments and colivings. This is a record figure and shows the increasing interest in such a flexible asset for investors.

We are witnessing the development of brands like Blueground, Limehome, Dovevivo, Colonies, The Social Hub? across the continent building a more hybrid model on target audience (students, tourists and professionals)?

3- Summer

It wouldn’t be too superb to state that 2022 has been the best summer ever. Not only in terms of a FOMO feeling but also from occupancy / ADR level. As a result of that, Airbnb experienced the best Quarter ever in terms of bookings and the occupancy levels in the midstay market remained above 90% in all the top 50 European capitals.?

This generated a lot of business on the landlord side of things but also generated a big impact on the supply liquidity of the market. Short stay players that had been mixing up their short/mid? stays portfolio vanished and the existing pure midstay suppliers got very requested.

Less supply + equal demand = overdemand?

Booking an apartment for 1 month became a true challenge, either in capitals and in secondary cities were tourism kicked off massively.

4- Private LLs getting more professional

The low interest rate in previous years motivated many small landlords to acquire 1 or 2 apartments on build to rent on a minor scale. At the beginning, these owners decided to leave the management and most of the profit to a property manager but as inflation and uncertainty showed up, owners were taking back their properties for sell or to manage the profits themselves

On the other hand, technology is more accessible and therefore with good smartphones to take pictures , Ical and platforms to market their properties, landlords do not need a professional company to manage their properties (if the portfolio is < 5 units)

Demand Challenges

1- Price is king

In this current inflation scenario, tenants are more window shopping and are checking different websites looking for the best deal possible. In 2022 we saw a misalignment on the demand side of tenants requesting all-inclusive prices to protect themselves against energy price spikes (specially on Center/Northern Europe) and operators trying to detach bills from monthly rents.??

Therefore, landlords that kept steady prices and assumed part of the electricity price impact? attracted more demand. Smaller private landlords, due to a non-existent logistics, were able to follow this price policy and therefore gained higher market share in platforms.?

As price becomes more sensitive, tenants start to zoom out from the center of the cities in order to find a better deal. We’ve mainly seen this new trend in Southern European capitals where public transportation has been long time ignored by international bookers mainly. Consequently, tier 2-3-4 in main capitals experienced more demand and that allowed to cool down prices (a little bit in downtowns). It is expected to continue this trend with more landlords offering their residences to the midstay market in the outskirts of cities and potentially that might lead to more supply, more competence lower prices and less pressure in the center of cities.

2-Covid user experience still remains

Despite a rapid comeback of the midtsay market (and the economy in general), 2022 has been a year of consolidation of certain user experiences that kicked off in 2020. Instant booking has finally come to stay in the monthly rental space. While it’s been largely implemented in the short stay market, until 2020 it was actually a blocker on the customer acquisition journey for monthly recurrent bookings.?

However, tenants do not expect to have high response times and are seeking to close deals fast (at a competitive price). Clients expect to book their monthly stay in a city as simple as they do on Booking an Airbnb? (that’s why these platforms are seeing a surge on +30 days stays). Nevertheless,? the technology in the midtsay market is still far behind the short star standards and this misalignments generate frictions with (specially) post booking experiences.

Flexibility is the other aspect that is still remaining in the market. Properties with flexible cancelation policies or no deposit are 3x more likely to be booked than the others. On the other side, landlords request more binding requests to avoid gap on bookings or last minute cancelations. The trade off seems to be more positive for tenants than for landlords, but in fact there is no better protection to last minute cancellations than bein gable to generate demand.

Challenges? for 2023

It would be too ambitious to set some marked trends for 2023 considering the volatility we’ve experienced in the last 24 months, however here you have my bets for the next 365 days.

1-?Stabilization of prices. All the indicators show a stabilization of inflation rates. Furthermore, more supply thrown in the market (new developments and single residential units) will generate more competition

2- Less seasonality. As pure short term supply will benefit form tourism, the midstay portfolio will experience a less volatility of demand as students, young professionals and remote works/digital nomads will mix creating a hybrid source of tenants

3- Market standardization of practices. User experience, cancelation policies and? booking flows will tend to more alike.

4- Platforms development. The investment of operators in brand look great on power points and on initial signs, but at the end operators will leverage customer care and excelling in operations (new product, optimisation,services)? than acquiring considering the cost and the complexity of attracting this broad demand. Therefore, platforms will become more significant in the bookings share as they will be API friendly.

5- Consolidation. We’ve been long time hearing about market consolidation but, in my opinion, we've seen too little. However, given the current financial scenario of VC/banks being more demanding in conditions, the more expensive cost of debt and a plateau in costs (not a massive reduction) will motivate alliances to be financially sustainable without depending on financial markets.

Hopefully you made it until here and found my points insightful/worth your time. I look forward to discussing if you don’t agree with any of the statements above expressed.

Let’s see how many (if any) happen in 2023.

Happy new year,

Samuel