London has one of the most thriving short-term vacation rental markets in the United Kingdom. It does not come off as a huge surprise, as it is one of the most desired destinations for internal tourism and international visitors in the entire country.
Starting an Airbnb business here is a lucrative opportunity, as the city is always in demand. London also has all the required infrastructure including professional Airbnb management services like https://masterhost.ca/airbnb-management-london/. However, before launching an enterprise here, it is important to learn more about the market, regulations, and performance metrics of local vacation rentals.
London Short-Term Vacation Rental Market Overview
London has a very competitive vacation rental market, and aspiring entrepreneurs should be prepared for it. There are more than 57,000 Airbnb’s currently operating in the city, where 67% of listings are entire homes, and almost all remaining rentals are private room listings.
Even though there are several areas in London, where the competition among Airbnbs is especially severe, it is hard to say the rest of the city is free of vacation rentals. Competition is present in every part of London, and it is rather intense everywhere. Nevertheless, some neighborhoods are still more beneficial than others based on multiple factors. Since it is only an overview, we won’t dive deep into details here, but you can read a detailed guide at https://masterhost.ca/top-london-neighborhoods-airbnb-investment/ to learn more about the most beneficial neighborhoods for launching an Airbnb in London.
The good news for entrepreneurs entering the market is that 49% of properties in the city are rented with a strict cancellation policy, and another 22% of hosts have selected a moderate policy for cancellations. By choosing a flexible policy on launch, it is possible to stand out from other offers, which is especially true for the least competitive neighborhoods of London.
Airbnb Regulations in London
One of the main laws regarding Airbnbs in London is called the 90-day rule, and it has been developed specifically for this city. It states that in case a person is renting out their house as a B&B, they are not allowed to rent out more than two thirds of the property for more than 90 nights in a calendar year.
Entrepreneurs who are planning to rent out rooms through Airbnb should simply ensure they are not giving away more than 2/3 of the property, enabling them to operate all year round with no issues. In case the property is mortgaged, it is also important to ensure the contract allows use of it for Airbnb.
In many cases, it is also necessary to obtain a permit for changing the purpose of the property, which is also called a planning permit. Once again, in case the property is mortgaged, it is still possible to obtain a permit and operate, even if it was not allowed initially.
The hosts are also obliged to ensure the safety of the property. It includes performing annual fire safety assessments, obtaining a gas safety certificate, installing smoke detectors, and providing the guests with information on how to contact emergency services.
Aside from regulations that are aimed to supervise the performance of Airbnbs, there are taxation laws the entrepreneurs will have to comply with. In case the property falls under the Rent a Room scheme, the hosts may benefit from a tax allowance of 7,500 pounds. In case the profits exceed this sum, it is enough to pay a net profit tax. For rentals that generate more than 85,000 pounds worth of annual income, it is also necessary to charge a 20% VAT from the guests. The taxes may vary depending on the size of the rental and its performance, so it is recommended to consult experts on the matter.
Key Performance Metrics of Airbnbs in London
Airbnbs in London have some of the best performance metrics in the United Kingdom. The Average Daily Rates are around $233 here, which is significantly higher than in most other cities in the country. Despite the rates being so high, the Occupancy Rates are staying on the level of 63% throughout the year. The seasonal effect is almost unnoticeable in London, as the city is popular among visitors all year round.
This results in an average annual revenue of $54,100 or around 42,750 pounds. The result is fairly impressive, especially considering the intense competition among short-term vacation rentals in the city. The RevPAR metric which represents Revenue per Available Room stays on the level of $150 here.
When launching a short-term vacation rental in London, it is vital to keep in mind that average performance metrics do not necessarily reflect the performance of a freshly established Airbnb. There are many factors at play, starting with an intense competition in the city and ending with the selected location.
Another important factor that aspiring entrepreneurs should keep in mind is the early performance of the rental. The first reviews the listing receives can make or break its performance, which is why it is vital to ensure the first guests are satisfied. In some cases, it is especially beneficial to use professional management services in order to avoid making beginner mistakes during such a crucial period. The same services can later be used for turning the rental into a source of passive income.
The vacation rental market of London has already recovered from the damages caused by the pandemic and has even managed to grow by 10%, compared to the previous year. The successful performance and stable occupancy rates of properties that are being rented out right now indicate the market still has more potential for growth and room for new entrants. With a proper approach, it can become the home of a new and thriving business that will bring revenues for years to come, even in case the market eventually gets oversaturated.