The Profitable Appeal of Short-Term Rentals for Building Owners and Developers

In recent years, we have seen the incredible growth of short-term rentals. Official government data reveals that in Q4 of 2023, there were 1.9 million bookings in short-term lets - equivalent to 18.1 million nights. Hosts in the UK also grew from 289,560 (January 2023) to 358,940 (December 2023), possibly driven by the continuously growing demand for short lets.

It’s not surprising that even building owners and developers are realising the incredible potential of short-term letting. Multifamily buildings, in particular, are starting to incorporate short-term rentals in their long-term strategies. It provides an additional stream of revenue and attracts a new market - the digital nomads.

If you’re a multi-property or building owner, pay attention to the movement of the short-term rental market. It can have a significant income potential that you can’t ignore.

In this article, you’ll learn more about the short-term rental market in London and why you should capitalise on it and include it in your building development plans.

The London Short-Term Rental Market

Short-term rental is one of the many letting strategies that property owners use to earn extra income. It’s categorised by leases that last for 30 days or less. These properties are usually fully furnished with utilities and other services included in the rental fee. This is one of the reasons why short-term rentals have the highest nightly rate compared to other types of letting.

It also shows how incredible the income potential is - especially when the short lets are located in London. After all, this city is one of the most visited places in the world. It’s not just a haven for travellers, it’s also a popular destination for business professionals, remote workers and international students.

The rapid growth of short-term rentals prompted the government to intervene. The rental revenue growth was so impressive that people started to buy properties for short-term letting. This aggravated the housing supply and it led to the implementation of new rules like the 90-day limit and the planning permission.

Despite all these restrictions, the short-term rental market is still gaining ground. Some landlords have even converted their long-term rentals into shortlets because it offers maximum income potential. According to data from Booking.com, the average daily rate (ADR) of short-term rentals is around £200.

These statistics reveal that the demand is too great for the government to completely shut it down. It continues to provide incredible opportunities in the property market - so much so that even multifamily building owners and developers have recognised its profitable appeal.

Building owners and developers will benefit from incorporating this letting strategy in their investment plans.

Why Short-Term Rentals Should be a Part of Building Development

Buildings are developed for 2 reasons: letting or selling. A building owner can choose to have the units rented out for a steady monthly revenue. Or they can sell every unit within the building to immediately get their ROI.

While these options guarantee investment returns, there’s another strategy that should be considered - a mix of both letting and selling.

Building owners can also choose some units to be rented out while waiting for the rest to be sold. For instance, the first units built in a residential unit can be rented out while the other units for sale are being finished or waiting for the right buyers. This ensures that income is generated sooner.

There are other reasons why this strategy will benefit multifamily owners and building developers. Consider them as you improve the profitability of your building projects.

Increases investment appeal

Transforming the first few units into short-term rentals will enhance the investment appeal of the building - especially once investors see guests starting to book a stay. They will see how people are attracted to the idea of living in the building.

The more people find the building appealing, the more it’ll attract investors. Not only that, short-term rentals offer flexibility to some owners. They can opt to buy some of the units and use them as a rental investment whenever they decide to travel.

These boost investment appeal. If there’s a need for additional funding or any stalled projects. With more resources, you can put more features that will increase the value and returns of the project.

Higher rental revenue potential

If the building has a higher appeal and value, you can get a higher rental rate. This would boost the overall revenue of the building, especially since short-term rentals have a higher nightly rate compared to long-term leases. You can implement dynamic pricing strategies to take advantage of the seasons where you can increase rental rates. If there are events, you can also adjust the rental rates accordingly to enjoy greater returns.

This profit potential will increase the viability of the multifamily building.

Growing workation market

Short-term rentals are in demand at the moment. The workation market is growing and with London being one of the favourite destinations of digital nomads, this market presents an incredible revenue opportunity. 

By adding shortlets in multifamily buildings, developers are catering to this new demand. The workation market can provide a steady stream of guests to effectively improve the building’s occupancy rates.

It wouldn’t take much to appeal to this market. Just have a workspace available and a secure Internet connection and remote workers will start booking units. The more digital nomads book a stay, the more people from the workation market will be enticed to stay as well.

Supports the tourism industry

The travel industry is looking for more accommodations for the influx of visitors in London. As mentioned, London is one of the most visited cities in the world. Whether it’s for education, business or leisure, people come here temporarily. They all need shortlets to accommodate them during their stay.

Buildings with short-term rentals can cater to these visitors and will increase the revenue potential and ROI.

Faster occupancy upfront

Newly developed buildings will enjoy faster occupancy rates thanks to the flexible rental options offered by short-term rentals. Guests will bring life to the newly completed buildings even before the other structures are ready for occupancy.

This will generate interest in the buildings which in turn will help developers fill units more quickly. Once vacancy periods go down, you can expect better rental revenues and faster investment returns.

It can attract more buyers for the units being sold. This will increase the value of the multifamily building and help sell more units.

Explore Short-Term Rental Opportunities

The London short-term rental market presents a great opportunity for multifamily owners and building developers. Although there are many regulatory issues, the demand is great enough to promise incredible profits and property appeal.

Whether the building is meant for selling or letting, adding short-term rentals in the strategy can boost investment returns. It can increase the project’s investment appeal and improve occupancy rates and revenue potential while supporting the tourism industry and the workation market.

However, managing short-term rentals requires expertise - especially when it comes to managing multiple properties. The high turnover of guests can be overwhelming - which is why partnering with a property management company like Opago can be of benefit to building developers and owners. Opago can streamline rental operations through comprehensive services that include marketing, guest communications and management, compliance, etc.

Find out how Opago can help transform building developments into profitable short-term rentals. Contact us to learn more about our services.