The Covid-19 pandemic caused a shock in the hospitality industry: mask mandates and health concerns made hotels an unappealing option for many, which pushed thousands of travelers to look to short-term rentals instead.
VRBOs and AirBNBs in the Cape Fear Region saw shockingly high occupancy rates in that time period, around the summer of 2021 and 2022.
Bram Gallagher, a research economist with AirDNA, a data collection company that scrapes data from short-term rental companies to analyze the market, said the entire country experienced extraordinary occupancy rates.
“The Wilmington area for example, we reached the 91% occupancy in July of 2021, which, for short-term rentals, that’s, that’s crazy,” he said.
Demand for short-term rentals has continued to grow steadily, but that surge in demand during the Covid years brought a lot more investors into the market. Now, Gallagher says supply is outstripping that demand.
“We go forward to July of, say, 2023. And occupancy is still high, but only at 83.2%,” he said.
Currently, there are more than 2,300 short-term rentals in New Hanover County, according to room occupancy tax data provided by the county. Those numbers have grown significantly in recent years, according to AirDNA historical data, but there is evidence they’re becoming a worse investment: the high cost of purchasing a home means the capitalization rate, or profitability of the investment compared to the home’s value, is at a low 8.7%.
The increased competition is pushing some AirBNB hosts to take their listings off the website, and put their properties back on the long-term rental market.
AirBNB Host Carl Elmore owns a few properties around Wilmington. Three years ago, he bought a house during the boom to rent as an AirBNB, but not a lot of people rented it. So he did the logical thing: “We sold all the furniture and flipped it to a long-term rental.”
That property only had 30-40% occupancy rates, and Elmore blames its location in the middle of town, which is desirable for locals, but less so for tourists. His long-term rental properties are far easier to manage.
“Most of the time, we haven’t even had to advertise those,” Elmore said. “We’ve had tenants that move out and tell their friends, ‘hey, I’m moving out, you guys should snatch up this place.’ And so the last three times we’ve had vacancies, we haven’t even had to advertise it.”
He’s still in the short-term rental game, for the time being, with a duplex near Oleander Drive and Wrightsville Avenue. But he said that investment property is starting to look like a good one to flip back to the long-term market.
“Phase two of COVID, we were at, like, 100% occupancy for almost a year and a half. And then now we’re more like 60 to 70%,” he said. “It’s hard to budget for, hard to plan for.”
Local Realtor Kim Burchett rents out one property on AirBNB and manages properties for other hosts. She said the industry was a gold rush a few years ago, but now, “There’s quite a few people who have also shut down there Airbnb is they’re not making the money that they thought they were going to make to cover all their bills.”
She has already taken one of her properties from short to long term. Still, she says not every host is likely to leave the market.
“We have people that winter here, from like New York, which we never had before. So they don’t want to use their properties, you know, in the summers, it’s too hot for them,” she said.
That’s less common in the Wilmington market than in other locations: across the country, just a third of listings are available year-round, compared to half in the Wilmington area.
As for the impact these AirBNB’s have on the regular rental market, Gallagher said it usually isn’t a meaningful difference in average cities. But it could be substantial in a town like Wilmington, which draws a lot of tourists because of the proximity to the coast. It means any given property could, potentially, be a successful short-term rental.
“Just the ability, the option value of being able to rent it out and short-term rental will start enhancing prices,” he said.
“The places that we do see the effects, those are ski resorts, expensive beach resorts, with tons and tons of short-term rentals,” Gallagher said.
He said those towns see some impact from AirBNBs, but at the same time, it’s a limited effect because of the types of houses that get turned into AirBNBs.
“Those are never going to be affordable housing units,” he said.
The impact of AirBNBs on the regular rental market is particularly notable in the beach towns, but it could be true in downtown Wilmington, too. The 28401 zip code has seen a 136% increase in short-term listings since 2020, and there are more than 700 of them in the zip code now. That expectation —that an investor could make more money if they flipped it to the short-term market — may drive up individual rental prices for those homes, and for similar properties.
As for who should actually invest in AirBNB, Gallagher says finding success is all about passion.
“If you’re passionate about, about providing great experiences, that’s really going to help you there are there are some people that love this business,” he said.
Otherwise, the challenge of juggling short-term tenants, cleaning units, and managing rentals continuously all across town can be tiring.
That’s what just might push a host like Elmore out of the market.
“I mean, I’ve got three small kids and a wife and I work a full time job. It just doesn’t really seem fiscally, advantageous,” he siad.
He plans to close up shop this fall at his last short-term rental, The Hammock House, if he doesn’t net more than 15% over what he expects to get renting it on the long-term market.
