Decline of remote work spells gloom for holiday villas
Once characterized by long stays during the pandemic-induced move to remote work, the trend for villa rentals is now evolving into a new normal. Even as occupancy rates have shrunk significantly from their peak, operators remain bullish on the segment.
Previously, these second homes and villas were occupied for about 15 days a month on average, but now they see occupancy of just nine days a month, according to the top two operators in the industry.
The return to full-time office work is a major factor behind this shift. Additionally, the launch of a large number of high-quality villas in the market has also played a role, founders of StayVista and SaffronStays said. Together, these companies manage around 1,100 holiday homes and vacation rentals across the country.
“We are seeing a change in the booking patterns now. Primarily, holiday homes are where people go during, as the name suggests, holidays,” said Amit Damani, co-founder of StayVista. “Prior to the pandemic, we saw an average of seven nights a month occupancy at our villas. During covid, this number shot up dramatically to reach 15-17 nights a month. But now it has stabilised at 9-10 nights for a villa.”
Devendra Parulekar, co-founder of SaffronStays, agreed. He said the numbers may seem lower overall, but this should not be seen as a sign that the business is not growing.
“Post covid, a lot of people made investments in villas. The supply base grew tremendously. Take Goa, for instance. Every district now has over 40-50 villas, which effectively means that the new supply coming in is very large,” he said.
“Obviously, demand has also grown but supply has outpaced it by 15-20% of what it was before the pandemic,” added Parulekar. “From 60-70% occupancy in the pandemic, the overall villa occupancy at our properties now stands at 30-40%.”
The good news is that the quality of supply is now improving, which means the traveller experience is getting better and choices are more, he added.
“Earlier there were older villas in the market but now the newer supply has better aesthetics, is more Gen-Z relevant, Instagram friendly, and the architects are great, so the guest experience has dramatically improved,” he said.
Parulekar said smaller villas with two or three bedrooms tend to have higher weekday occupancy due to small families taking short breaks. However, occupancy in larger villas, suitable for big families, typically drops to about 40% as it's harder for such groups to take weekday breaks.
“We used this opportunity to churn our portfolio. We also began to focus on the higherend and signature properties. We reduced 30% of our supply actively but despite that, for the last four years, we grew 45-50% in terms of gross revenue,” he added.
And so, the per-home yield is getting better even though the occupancy may not be as high. Average Room Rates or ARRs are getting better because of the improved quality of inventory. ARR is a metric hoteliers use to calculate how many times a property is occupied in a month and what the average cost per room per night is.
There are no official estimates of the size of the luxury villa segment. Parulekar estimates there would be anywhere between 2,500 and 3,000 high-end and luxury villas in the country, and SaffronStays has about a tenth or 290 of them.
One industry estimate— though by a builder and rather rosy—suggests, in 2023, the overall branded rental villa market stood at $329.6 million and is expected to grow at a CAGR of 33.2% in years to come. Axon Developer, in its report, said this segment is slated to reach $1,377 million by 2028. But the business of alternate accommodations has become steady.
Online travel major Booking.com’s Asia Pacific managing director Laura Houldsworth, in a recent conversation with Mint, had said a third of the company’s global bookings come from this segment.
Villa owners, who typically share 30% of the revenue with these operators, are now seeing lower returns from their properties. After operational expenses, the owners earn about 50% of the revenue from the days their villas are occupied.
The operators said they have been able to offload some problematic or older inventory where the owners have not been focused on or interested in investing in maintenance and upkeep.
For instance, StayVista is trying to keep away from budget homes in general. “We tell new owners not to expect too much from their holiday homes, but the fact that their holiday homes will be well maintained and yield positively at the end of the month rather than give them negative returns in the form of repairs and maintenance expenses when the home is left unused,” he added.
“When they come there, initially, they are kind of nervous about giving their properties to people who are not their friends or family, but later, as the asset gets older, they find it a little more difficult to deal with the asset because the novelty value of it has gone down and now it requires a lot of repairs and restorative work,” added Damani. The company is now looking at better, newer developments all over the country where “we are also able to suggest more realistic projections to our owners”, he said.