Weekly Buzz: Short-term rentals and maximizing commercial profits

Western Canada's top commercial real estate stories, featuring coverage on short-term rental regulations and profits and the resort market

Western Investor
September 29, 2017



This week’s top stories focus primarily on the vacation rental market. New regulations in Victoria may prevent developers from allowing short-term rentals on new projects, while a new report reveals most Airbnb hosts profit from renting out entire homes or multiple units to avoid taxation. Resorts are also doing their part to maximize profits, by decreasing room volume to increase consumer interest by offering more spacious leisure grounds. Speaking of increasing profit – property management companies in Canada have recently retooled to help landlords and investors get the most out of their assets.

Here is Western Investor’s pick of the top commercial real estate stories published this week.


Short-term rental rule changes could cause chill, says Victoria developer – Business in Vancouver

New regulations passed by the City of Vancouver will limit short-term rentals under 30 days, including most Airbnb listings. Developers worry it will affect sales where homeowners and investors alike made purchases believing rentals would not be governed. 

David Chard, who has built five residential buildings in or near downtown, with four others planned or under construction, said developers may start to question the stability of the city’s policies. The rules affect suite owners who have been renting their units through online platforms such as Airbnb and treating them like businesses.

The rule changes will disallow in new developments short-term rentals of fewer than 30 days if they are in transient zones — the ones that include hotels, motels, and bed and breakfasts. Condo units currently being operated as short-term rentals can continue to be run that way, but will lose that status if not operated as a short-term rental for a six-month period.

“It’s disappointing that council has not considered grandfathering provisions or, I believe, realize the negative impact on housing affordability or accessibility for many persons in the housing continuum,” Chard said in an email. “Developers rely on stability and continuity for their long-term planning as projects generally take years of planning prior to a shovel being put in the ground.”

Chard said it could have a significant impact on projects in the planning stages. “Projects that have been pre-sold and individual homeowners or one-off investors that have purchased in anticipation of stable Victoria policies for their decision making have been side-swiped,” he said.

The Urban Development Institute had a similar stance Monday. In a statement, UDI Capital Region executive director Kathy Hogan said that understanding the impact of and finding the right regulations to implement for short-term rentals is a complex issue. “Council's broad-based approach of eliminating transient zoning ... removes certainty for developers and creates greater risk in an already risk-prone industry,” she wrote. “There are likely more effective ways to regulate short-term rentals and maintain the rental stock.”

But Victoria Coun. Geoff Young said the city is concerned about the lack of housing and the time has come for action, adding that council’s role is to establish a regulatory framework to make it happen. “We have studied (short-term vacation rentals) more than enough to recognize that it’s an issue and we know which direction we want to go,” he said, noting they could never know how many units currently being used for short-term rentals in the city are likely to revert to residential use.

“There’s not a world in which we could ever know that. What we do know is there are many units used for this kind of use, nor is it difficult to determine that a lot of people are finding it difficult to find places to live as permanent residents,” he said. “We made the value judgment that we would like to see the market shift over in favour of the permanent residents.”

[Business in Vancouver]


Resorts reduce room volume to increase profits – Western Investor

Okanagan and Vancouver Island resort owners have embraced a new layout for developing their properties to entice travellers, Tyler Nyquvest of Business in Vancouver reports. Visitor feedback revealed that travellers prefer more open space, causing owners to scale back on accommodations to increase leisure area.

An Okanagan resort is hoping to curb the trend of overcrowded resort venues by reducing volume to increase profit.

And it is not alone.

Cozy Cabins Nature Resort, located west of Vernon in Creighton Valley, is incorporating recent feedback from guests and emerging industry trends in the industry to take a new direction with the business, said resort marketing manager Erik Hatterscheidt.

“[The idea] came out of the fact that when we were developing our resort, we built our cabins a little bit differently than a lot of other resorts out there by spacing them farther apart, spreading them over our 60 acres,” said Hatterscheidt.

“We were finding that a lot of guests were booking in with us because of that reason, that extra space.”

Because Cozy Cabins is between Vancouver and Calgary, Hatterscheidt noticed that family reunions were commonplace at the resort and neighbouring competitors.

“We found that when [large groups] came in together … it changed the whole dynamic of the resort, so we started turning them away,” said Hatterscheidt.

“Most of the resorts around us make their bread and butter from those types of family reunions. We started saying no to larger groups, which were a huge part of our income, and started booking small families.”

After surveying guests, Hatterscheidt discovered visitors would be much more willing to pay a premium for what they already had, minus the extra people.

Cozy Cabins increased its price range approximately 40 per cent with the main focus being quality over quantity. So far, the strategy has worked, said Hatterscheidt.

“Our profit margin went from an average of 15 per cent to 50 per cent. Our revenue has been growing significantly as well.”

The trend is becoming a staple to B.C. resorts as tourism numbers increase. Visitors are more interested in quiet, unobstructed landscapes commonly marketed in Canadian travel material.

“You cannot provide that kind of [serene] experience if you have any kind of volume,” said Laura Neubert, vice-president of business development at Clayoquot Wilderness Resort.

The West Coast resort features 25 luxury tents. The quality-over-quantity approach has always served the resort’s business strategy, said Neubert.

“It takes a lot of effort to deliver really unique, once-in-a-lifetime experiences to every single guest, and you can’t do that in great numbers.”

[Business in Vancouver]


Most of Airbnb's revenue comes from what the hotel industry calls commercial operators – Financial Post

Most Airbnb operators have a commercial business operating with their listings – 83 per cent of the site’s total revenue comes from hosts renting entire home units. This is maximizing their profits, but also skirting around regulations and taxations, Financial Post reports. 

Most of Airbnb’s revenue comes from people renting entire homes that they don’t live in, according to a study, which suggested “hosts” are getting a tax break compared with the traditional lodging industry.

A study released Wednesday by real estate company CBRE, and commissioned by Ottawa-based Hotel Association of Canada, which represents more than 8,000 hotels, motels and resorts, says 83 per cent of Airbnb’s total revenue comes from hosts renting entire home units where the owner is not present.

“That’s people who are renting multiple homes or multiple units across the city. They are really running a business and because they are running it through a platform they are able to skirt the rules,” said Susie Grynol, president of the association. The hotel market is worth $18.4 billion annually, and directly and indirectly employs 304,000 people across the country.

The study looked at a 12-month period from April 2016 to March 2017 and found there are about 70,000 Airbnb host owners with more than 100,500 listings in Canada that generated $500 million in revenue. The number of Airbnb hosts, units and revenue has nearly doubled over the past year.

About 70 per cent of units listed on the Airbnb platform in Canada are entire home rentals – guests have complete and sole access to the entire unit during their stay, according to the researchers. Hosts renting out two or more entire-home units generated more than $238 million in revenue in the past two years. Based on the past 12-month period, multi-unit hosts make up seven per cent of all Airbnb hosts in Canada and account for 19 per cent of units and more than 30 per cent of the revenue generated.

At the core of the dispute the hotel industry has with Airbnb is a complaint about an uneven tax structure.

One of major tax disadvantages the hotel industry faces is the harmonized sales tax, which is not applied to Airbnb rentals. That percentage depends on jurisdiction but in Ontario it is 13 per cent. Various local jurisdictions across the country also levy local fees or taxes on rooms.

“From a tax perspective, we are calling on the federal government to update the tax law to incorporate digital enterprises,” Grynol said. “You run a business in Canada and you pay tax, it shouldn’t be an option because you are digital.”

[Financial Post]


Revamped property management aims to maximize investor profit – Western Investor

Retooled property management wings at commercial firms JLL and Colliers International aim to help investors get the most out of their commercial investments with asset advisory and tech.

“JLL has an exceptional platform. In my 20-plus years in the business, I haven’t seen anything like it,” he said. “It is very client focused. It is very sophisticated and collaborative.”  For example, during recent negotiations on a complex, mixed-use Canadian project, JLL flew in management professionals and engineers from its Boston office, with specific experience, for the client meetings.

“The key,” Fiell said, “especially for third-party investors that we often deal with, is making sure they don’t lose value, keep their tenants happy and build on that.”

JLL is strictly focused on commercial real estate. “We don’t do residential,” Fiell said, explaining that even on mixed-use projects that involve condominiums or apartment rentals, the company will turn the residential management over to other companies. He agreed that this stance could prove a handicap in the Vancouver market, where mixing residential with virtually every form of commercial and industrial real estate is common.

“We are concentrating on Alberta and Ontario,” he conceded. “Vancouver is a difficult market to get into. There are some very good property management firms out there.”

Among its Tier 1 Vancouver competitors is Colliers International, ranked second in B.C. behind Bentall Kennedy as the biggest commercial property management firm in B.C.

Colliers manages 55 million square feet of office, industrial and retail space across Canada, including 5.3 million square feet in Metro Vancouver.

“More than half of our portfolio is managed on an integrated basis with leasing and other service lines such as project management and tax consulting,” explained Lesley Heieis, Colliers vice-president and head of its B.C. property management division. “Our asset advisory services is a unique offering that fully integrates the service lines and provides the client with a single point of contact at no additional cost.”

Heieis said Colliers keeps a tight focus on increasing rental income for its clients. “Everything we do is geared toward maximizing asset performance.”

This can include recommending renovations or adding amenities to generate higher rental rates, energy management to reduce operating costs, and even “a complete repositioning of the asset in the marketplace.” Colliers provides a 24-7 service centre so it can react to any after-hour calls or emergencies, she noted.

Colliers also leans on the latest technology to boost asset performance. Modern management can’t get bogged down with “slow, outdated tools and processes,” she said.

“There are many opportunities for technology to be used in the buildings, such as new parking technology including licence plate recognition, digital directories, building automation systems, smartphone apps for occupants, and emergency communication systems. We are always exploring ways to use technology.  Many new tenants entering the Vancouver market are high-tech businesses so they have an expectation that modern technologies will be used in the buildings they occupy,” she explained.

[Western Investor]

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