CO Short term rental elections 20% tax rates approved, what are the results and what does this mean to you and Colorado ski real estate?
Regardless of party affiliation, this has been a big voting season for Colorado real estate…
The headline in the Summit Daily sound ominous: Summit County servers stung by lack of visitors with lowest occupancy rates since 2015. From the headlines it sounds like Breckenridge is in a free fall. Is it really? What is going on in Breckenridge and other Colorado Mountain towns? Does this mean we are in for a major real estate reset in ski town real estate in Breckenridge and other Colorado mountain towns?
Destimetrics, a business intelligence branch of Inntopia that collects data from different vacation destinations, recently released a study of 17 mountain towns throughout the west that shows tourism numbers through July 31 are not only down from 2021, but they’re also below pre-pandemic 2019 numbers.
“Current summer occupancy as of July 31 is pacing lower than at any time in the last seven years with occupancy down compared to every year back to 2015,” said the study.
From the Summit Daily article, it sounds like the bottom is falling out on Breckenridge visitation. Fortunately this is not the case. Occupancy is only one metric to look at when analyzing the hospitality industry. It is important to also look at room rates (how much is someone paying for each night). For example a hotel could cut rates and easily achieve 100% occupancy, or they could raise rates substantially and have a lower occupancy. Currently in Summit county and other Colorado mountain towns, room rates are rising substantially. Here is an excerpt from the author:
“While summer occupancy is lower than any time since 2014, those extraordinarily high rates are giving travel suppliers struggling with staffing issues a bit of a breather without having much, if any, impact on their bottom line.”
Long and short, average daily rates (ADR) have been soaring. When looking three years ago, the pre-pandemic booking period for the 2019-20 winter, occupancy is down 2.9 percent with ADR up a strong 35.6 percent. The prices hotels are charging each night are leading to substantially greater profits for the hospitality industry even with lower occupancy levels.
Breckenridge is not indicative of other Colorado ski towns. Summit county (Breckenridge, Keystone, Copper Mountain, etc..) are much more dependent on drive up traffic. As gas prices have doubled over the summer, the amount of day trips has decreased. This is leading to less revenue for restaurants that have not been able to charge enough to compensate for less visitation. Hotels, on the other hand, have drastically increased rates and visitors have absorbed the cost. If I look at true destination markets like Steamboat, Aspen, Telluride, I will guess that occupancy is about flat and average daily rates have increased substantially.
The decline in occupancy is not impacted by the nightly rental regulations. The decline in occupancy is clearly a result of large jumps in room rates. As room rates have jumped 36%, the amount of people able/willing to pay this amount has decreased which has led to the decrease in occupancy.
With occupancy down it is hard not to think about what this does to real estate prices. Cities like Breckenridge have 60%+ of all properties non owner occupied which means a large number of nightly rental properties. With such a large quantity of rentals, how will occupancy declines impact prices.
Currently we are seeing real estate in Breckenridge and other ski towns soften. I don’t think that occupancy levels are the driver behind this softening as rising room rates have allowed owners to rent less while at the same time still increase their revenue. This factor should actually increase the value of real estate as a prospective owner could theoretically use their property more while making the same amount of money.
The real culprit behind declining real estate prices in Breckenridge and other ski towns is due to macroeconomic factors. Interest rates have basically doubled, consumer sentiment has plunged, a stock market correction has occurred, and there is considerable uncertainty about a recession. All of these factors combined have weighed on real estate prices.
After reading the Summit Daily article, it sounded like the sky was falling on Breckenridge and other ski towns. The real story is just the opposite. Lodging properties are having the same issues as the rest of the economy with a shortage of workers and as a result they have intentionally increased prices to slow demand to a reasonable level that they can keep up with. This has worked out great for property owners as demand has declined a little, but at the same time room rates have soared so owners are making more money by renting less.
Although prices are now falling in many ski towns, this is not due to occupancy levels as average daily rates have more than compensated for a decline in occupancy. The culprit behind falling prices is a radical change in macroeconomic conditions. Fortunately higher room rates should help temper downward pressure on real estate prices.
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Written by Glen Weinberg, Owner Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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