Travel

Airbnb owners get a reality check after economic slump

The living area room of a 3 bedroom airbnb

The living room area of an Airbnb apartment in Nyali, Mombasa County. PHOTO | NMG

In just a few years, the term Airbnb has become a household name replacing traditional lodgings, guesthouses, and any form of accommodation outside the classic definition of a hotel.

The concept was put together in 2008 by two individuals who ingeniously came up with a business idea to host a delegates’ overflow at a conference in New York by using inflatable airbags as alternatives to beds and packaged the service offering as air, bed, and breakfast hence the term Airbnb.

The idea landed in Kenya just as soon as it became a thing in the US and early investors locally and abroad made a killing raking in impressive returns by charging a premium for the flexible stay arrangement.

Several years down the line, it’s a mixed bag of chips.

A survey among hosts—those who own the Airbnbs—and agents—those who facilitate clients to hosts — indicates dropping revenues.

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“Business has been on a slump ever since Covid-19 hit and expatriates left in large numbers and got worse with the (uncertainties) of elections,” says Hannibal Simba, a real estate consultant who manages several Airbnb units for local and international investors in Kilimani, Kileleshwa, and Nanyuki.

A similar sentiment is shared by Johnhenry Okulu, a realtor with Supreme Residences in Kilimani.

“At the beginning of the year business was a bit low due to the unfavourable economic times. The online booking platforms as well were not giving us guests as they used to. It was like people were on a strict budget,” says Mr Okulu.

“Nonetheless, we still managed through occasional business travels, getaways, vacations, and meet-ups.”

Hosts and agents surveyed said that a combination of factors such as Covid-19 travel restrictions, a fumbling global and local economy, recent elections uncertainty, high taxation, and an unstructured operating investment environment have seen returns dwindle even as the sector enters the dog stage (is a business unit that has a small market share in a mature industry) investment cycle.

In Kilimani for example, a one-bed unit would net Sh6,000 or more a night. However as the business has dwindled, hosts have been willing to take as low as Sh4,500 for a night. Similar bargain pricing trends are replicated across several major towns.

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This has meant reduced income levels, sometimes forcing hosts to dig into their pockets to top up for rent and other costs to keep their businesses afloat. Hosts not able to top up for rent for months on end have been forced to close business or relocate.

One landlord who spoke to the Business Daily on condition of anonymity says that two tenants who had opened Airbnb units in Kileleshwa in Nairobi have since closed and he has reverted to renting the units as unfurnished.

Hard hit areas

The tenants, he says, cited lack of business as the reason for the exit. Thika Road, Ruaka, Kilimani, and South B are among the most affected neighbourhoods by low Airbnb business.

Hosts and agents say that high tax, ease of entry into the Airbnb business, and lack of a structured environment to operate on have also not made things any easier for investors.

Currently, to set up an Airbnb unit, one only needs to identify a unit, rent it out in agreement with the landlord and they are in business.

“What is also contributing to this predicament is the ease with which anyone can set up and operate an Airbnb unit leading to a glut and clients not paying top shilling for accommodation as there are alternatives,” says Mr Simba.

High taxation by Tourism Regulatory Authority (TRA) under which Airbnbs fall has also been blamed for the current predicament. Hosts are required to pay Sh27,000 as licence fees to operate a unit. Investors say that this is unfair as the businesses are classified together with hotels that have many rooms in a single unit. They have been pushing for a review.

Closures

Similarly, the absence of guidelines on a structured environment in which to operate Airbnbs has led to rowdiness leading to the closure of Airbnb units. Recently, a Nairobi developer ordered out tenants hosting Airbnb units after complaints of lawlessness.

But it is not all gloom and doom. Hosts and agents in several areas report booming business saying that it all depends on the location one chooses to set up a unit, how they furnish and price it, and ultimately how well they advertise their units.

“Any investment that touches property is imperishable. Things will turnaround,” said Felix Ongaji, managing director of Royal Target Homes & Properties.

According to AIRDNA, an independent think tank that tracks Airbnb bookings globally, demand remained resilient in the second quarter of this year and was past pre-Covid levels.

Globally, Airbnb recorded gross booking value of $17.2 billion.

In Europe, Middle East and Africa, bookings were up 11 percent past pre-Covid levels for quarter two compared to quarter one and up 26 percent compared to a similar period last year.

"This points to the potential of the industry locally and opportunity for growth past the teething problems the industry faces," said Okulu.

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