Airbnb Flats Are Empty or How the Coronavirus is Affecting Prague’s Real Estate Market

The coronavirus and subsequent lockdowns have left virtually no industry untouched. Among the many affected is the short-term-rental industry, much of which is powered by Airbnb and the similar platforms that followed its lead.

According to Euromonitor, the number of tourists who spent at least one night in Prague last year was over 9.1 million, more than in Amsterdam (8.8 million) or Barcelona (7 million).

As a result, real estate prices and rentals have risen steeply in recent years, in all parts of the city. In the wider center from Smíchov through Karlín to Libeň or from Vršovice through Holešovice to Dejvice, this increase was partly due to renting apartments via Airbnb and similar services, which reduced the supply of long-term flats despite growing demand.

Within less than a hundred meters, you could easily find fifty Airbnb flats. However, the coronavirus pandemic completely changed the situation.

According to bezrealitky.cz, in March the number of apartments for rent in the Czech Republic increased by 16 percent. In Prague by 41 percent.

“To imagine, there are currently about 30 apartments that were used by Airbnb on Bezrealitky every day. If we took the growth for the whole month, we are on the growth by half compared to the previous one,” said Hendrik Meyer, CEO at BezRealitky.

Airbnb is dead right now

Airbnb is in crisis and, according to Reuters, the company has suspended all its marketing activities to save $800 million this year, and the founders will not pay any wages for six months.

In his message, Brian Chesky, co-founder, and director of Airbnb praised the company’s property manager partners and acknowledged that Airbnb needed to do a better job communicating with them. Despite what the company did with earlier reservations, Airbnb will stand by and enforce host’s cancellation policies for any bookings made after March 14, he said.

“The last few weeks have been a bit of a wakeup call for us. We know we need to be closer to you,” Chesky said. “We’re going to build things in partnership with you. We really are partners — or at least I want us to be.”

The company set aside $250 million to reimburse property managers for 25% of the revenue they lost due to bookings cancelled as a result of the pandemic. It set aside another $10 million for so-called Superhosts — highly rated managers of popular properties — to help them pay their rent or mortgages.

 

“The expectations of Airbnb apartment owners are exaggerated”

Meanwhile, real estate prices are also falling in the rental market in Prague, which is, according to Meyer, a short-term effect related to coronavirus on the economy in general and not just Airbnb.

“The number of apartments to be withdrawn from Airbnb will increase. The main wave will not come until it is clear that the summer season will be without mass tourism,” added Meyer.

“In May and June, another 5-6 thousand apartments could be poured into the rental market.”

“Many Airbnb apartment owners have already decided to offer so-called mid-term rentals, for example, for a period of 2 to 3 months. They are often well below the market price of long-term leases, which logically scatters the dynamics of the market,” says the CEO of UlovDomov.cz.

According to Březina, however, most apartment owners are still waiting and hoping for the summer tourist season. If there is none in May and June, another 5 to 6 thousand apartments could be poured into the Prague rental market. However, those interested in rental housing should be very cautious in the coming period, especially if they come across suspiciously advantageous offers of apartments in the city center.

“We recommend them to conclude a contract for at least a year, ideally for two, and carefully study the terms and conditions – especially the articles related to the possibility of termination of the contract by the apartment owner. Although owners are temporarily forced to seek an alternative, it is more than likely that they will want to return to the original model and higher prices as soon as possible,” says Březina.

The fall in prices will not be sharp

Therefore, if the borders remain closed, rents will drop first in the central part of Prague and the decline will gradually arrive in other districts. 

However, the decline, according to Meyer, will not be so sharp. Rents can reach the level of the beginning of last year, i.e. be six percent lower.

In the long run, however, residential housing prices are unlikely to fall. The willingness to buy will support central banks by lowering interest rates; buying real estate can still be interesting for investors seeking security against the economic downturn during the crisis.

“So, prices cannot be expected to fall – on the contrary, growth will continue, perhaps only at a more moderate pace. And the market is still not stopping for sales. In Prague, for example, we now see a 17% increase in sales over the previous month. The whole situation probably accelerated the already negotiated real estate sales,” adds Meyer.