Palermofication: Airbnb Oversupply
A deep dive into the current Airbnb dynamics in Buenos Aires: is it worth the effort?
Welcome Avatar! During the years of the pandemic short term rentals started popping up all over Buenos Aires, and supply has only increased since then. What are the current returns on Airbnb units in Buenos Aires and Palermo, and how do they compare to traditional rentals? Let’s dig in.
It was good while it lasted, but the latest numbers suggest that the STR (Short Term Rental) market in Buenos Aires is completely saturated, especially in Palermo. Just a small downturn in international tourism and these numbers will become even worse.
Basically every home owner with a closet to spare started furnishing it to rent it out on Airbnb. This oversupply has impacted returns significantly.
Buenos Aires STR Overview
The total number of STR units in Buenos Aires is now 23,980, which is an increase of +65% compared to 2023:
The STR market is concentrated in Palermo — this barrio will be discussed in more detail below —, Recoleta, Almagro, Villa Crespo, Retiro and parts of the center and San Telmo.
Out of all units, 79% is 1 bedroom/studio apartments:
Bigger units are scarce, especially from 3 bedrooms and upwards. This indicates that if a studio apartment doesn’t have crazy differentials (pool, other amenities, location), it will have more competition compared to bigger units, and will be relatively harder to rent out.
The average monthly occupancy for all Buenos Aires is down -13% YoY, and the 50% level of May 2023 is a significantly lower this year, closer to 45%.
The reasons are more STR supply in the most popular neighborhoods, and Buenos Aires being a more expensive destination compared to last year (easily 2x in USD):
The revenue on STRs in 2024 is down significantly compared to the same period last year, with an average of -13%, but for most units this will be closer to -30% or more:
If we look at the average daily rates since mid-2021, STRs are moving back into the direction of these COVID levels of $45/night, and many studios are currently listed around $20-25/night, even in neighborhoods like Palermo:
The race to the bottom in terms of price/night is most noticeable in Palermo.
STRs in Palermo
For STRs on Airbnb, this is what Palermo looks like:
As you can see STR growth has been impressive in Palermo, like a true virus that has taken over most blocks in the neigborhood. In total, close to 35% of all short term rentals in Buenos Aires are located in Palermo (8369):
However, the average monthly occupancy is slowing down declining compared to previous years:
Average revenue per listing is $9k/yr, and revenue is starting to trend down year after year since 2022:
ROI Estimate/Breakdown
The revenue numbers above include all type of units though, so for a better overview of the potential ROI it is better to look at the averages on a per unit type basis. The averages used here are all based on units in Palermo:
Of course, there are many other factors to consider such as the type of amenities, reviews, and other perks hosts could offer that will make their STR more profitable. These are just the most bare-bone estimates, so these numbers could have more potential upside depending on a range of factors.
As you can see, the smaller units in terms of return are barely worth the effort at this point, especially if the building does not have amenities.
This is an example of one of my studio apartments in Palermo Hollywood this month:
Not great. Granted, May and June are historically two of the slower months in Buenos Aires, and this unit is one with minimal effort with no building amenities except for a rooftop parrilla, but still. This would definitely be higher with better building amenities.
Logically, the bigger the units and the better the building amenities, the better the ROI.
There has been a lot of overconstruction of monoambientes (studios) and 2-ambientes (1 bedroom) apartments, simply because this fits the price range of the biggest potential buyers pool. At this point in time turning these into STRs does not make a ton of sense in terms of the potential return.
For bigger units the picture is different, for both the STR market and traditional rentals. Bigger units are scarcer, and offer more upside in both cases.
On the traditional rental market, there are a ton of costs you do not need to deal with as a property owner: electricity, building expenses, water, internet, and even municipal taxes are all taken care of by the renter.
Since you don’t have to deal with all those fixed costs in both furnished and unfurnished long term rentals, having a furnished long term rental makes more sense now on average versus an STR if the current dynamic keeps going.
Granted, differences between properties, amenities etc can be huge, keep in mind that these are averages.
Keep in mind that these long term rental prices are based on local market prices, if renting out to foreigners without permanent residency for a max of 6 months these prices can be higher.
Final Thoughts
If you do not want to rent out your unit long term because you want to use it yourself for a few months a year, then it probably still makes sense to rent your unit out as an STR. At least it won’t be empty and you can still lift on the potential capital appreciation of the property, plus you can use it whenever you need to.
If you do not plan to use the property but want to invest in Buenos Aires because property prices have dropped for 6 consecutive years and are probably bottoming out, then it makes more sense to furnish it and rent it out long term (especially for bigger units).
My short to medium term expectation is that many smaller units will start moving back to the traditional rental market, taking away STR supply and improving daily rates over time. This is why I plan to keep my studio on the STR market for now, plus that I like having the flexibility of being able to use it myself when friends or family come over.
Other cities will have a different picture, and these numbers are very much focused on Palermo since that is where most of the supply and demand is in Buenos Aires.
See you in the Jungle, anon!
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