Tel Aviv rents to fall as Airbnb market collapses

Tel Aviv  / Photo: Shutterstock, Shutterstock.com

With no tourists around, the rental apartments market is adjusting itself to the new situation.

With no tourists around, owners of apartments that were being rented out on short-term leases are looking for long-term tenants.

Yad2 analyst Nir Chen examined the supply of apartments available for rent in the main cities in the first two weeks of March 2019 and March 2020. He noticed a substantial rise in the number of apartments offered for rent in Tel Aviv. "We see an increase in the number of new notices reaching the Yad2 website. We believe that many Airbnb apartments that were meant for internal and external tourists have been converted to rental apartments. A steep rise in Tel Aviv is visible, and the reason is obvious - the coronavirus. The owners are putting the apartments back on the market, and the supply is increasing."

Real estate broker David Avidan has been advertising many apartments for rent in Jaffa on the designated Facebook page (Airbnb Tel Aviv Apartments for Rent in Jaffa). His posts are accompanied by spectacular photographs that make it clear beyond a doubt that these are Airbnb apartments that are now being offered on a different format. Avidan says that these apartments were leased to tourists, but because of the virus crisis, are now being offered for short periods, with a one-year option. "There are many furnished Airbnb apartments that are walking distance from the sea that people use to go to with just a suitcase, like a hotel. Things have slowed down, and people are afraid now to rent apartments. They aren't making any deals. They're afraid to step out of their homes."

The people who do need apartments for short periods are those who have to be in isolation, or their families. They have an extensive supply to choose from, and the prices are also dropping steeply.

A glance at the Airbnb website shows that anyone who wants to rent an apartment for one month in Tel Aviv has over 300 apartments to choose from. A private room in an apartment in the Florentin neighborhood, which used to cost NIS 4,302, is now being offered for NIS 3,528. A two-room apartment in central Tel Aviv in a renovated Bauhaus apartment, which used to cost NIS 6,029, now costs NIS 5,426. A studio apartment on Jerusalem Boulevard in Jaffa, for which people paid NIS 6,484, now costs NIS 4,530.

Israel Land Assessors Bureau chairman Haim Mesilati believes that someone now converting an apartment previously used for short-term rentals to an ordinary rental apartment is making a mistake. "It isn't smart to judge a market for apartments at a low point. Someone wise enough to persist through the current low point will get a higher return in the long term. If ordinary apartments give a 3% return, Airbnb apartments give 7%.

"Any one strong enough to take a few punches on the way will make a better return. Someone who converts his apartment to long-term rental will lose twice - a low rent now and future high rents. You don't leave a risk market at a low point. I don't know of any market that always goes down."

From a shared economy to pure business

The Airbnb digital platform, which first surfaced in 2007 in San Francisco, changed the global rules of the game for hotels. A new type of hosting sprang up around it. There were those who talked about it as a successful embodiment of the shared economy idea. It quickly turned out, however, that it was a new economic sector that attracted business forces, not just owners of private apartments who traveled overseas and rented out their apartments when they were out of the country.

It was estimated in December 2019 that of the 13,000 apartments in Tel Aviv offered for short-term rental on various websites, 6,580 were managed by one person, or by a company responsible for several properties. In other words, at least half of the apartments offered as vacation apartments did not belong to private individuals.

The "Israel Airbnb" and "You Are Not Alone - Apartments for Isolation all over Israel" Facebook groups are offering many apartments designated for people in isolation because of concern that they may have been infected. Omri Segev, CEO of the like a local company, who offers dozens of apartments all over Jerusalem, talks about a dramatic change in his company's activity: "Since this coronavirus business began, tourism has come to an abrupt halt, and certainly foreign tourism in cities like Tel Aviv and Jerusalem. Since no entertainment places are open, internal tourism has also disappeared.

"We're trying to make lemonade out of this lemon. We're been stuck with properties, and we're trying to give good service to people who have to be in isolation. The prices are very low, because the market is being flooded." An apartment leased a year ago for NIS 350 a night now costs NIS 150. Segev explains that the lessors' profit is much lower, and not just because of the lower prices. In contrast to the former situation, they now also have to pay VAT.

Yulya Daiment, operations manager at the loginn company, which has operated rental apartments since 2016 on the rent-to-rent model, in which apartments are rented from the owners, renovated, and rented out to tourists for short periods. Daiment says, "The turning point for us was when they denied entry to tourists from France, Germany, Austria, and Switzerland. Then we realized that we had a problem, and started appealing to the local community for short-term rentals. We rented out some of the properties for several months.

"Family members who gave their home to a person in isolation"

"In the past week, since it was decided to put everyone arriving in Israel into isolation, there has been a huge increase in demand for apartments for 14 days. Some of those calling have to be isolated, and a large proportion are family members who gave their home to the isolated person and left, returning couples, and so on. Some of them order directly, and some through Airbnb. The other platforms, including booking.com, are dead."

"Globes": And the prices?

Daiment: "They've been cut in half. We're aiming at price-oriented tourists, which is a very basic market, and offer them pleasant rooms, but modest ones. Our model is very simple and lean, so that we don't offer high prices to begin with. We're in a situation in which we're asking cost plus operational maintenance. We're not looking to make a profit."

Airbnb Israel director Lior Weintraub is not eager to be interviewed. He says that the company is undergoing an upheaval, like everyone else, and that it is difficult to provide figures for the changes in the inventory of apartments.

Published by Globes, Israel business news - en.globes.co.il - on March 22, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Tel Aviv  / Photo: Shutterstock, Shutterstock.com
Tel Aviv / Photo: Shutterstock, Shutterstock.com
Twitter Facebook Linkedin RSS Newsletters גלובס Israel Business Conference 2018