The Canary Islands are a popular destination for holidaymakers and a favorite location for many people looking to invest in holiday homes. In this blog post, we will take an in-depth look at the holiday home real estate market in the Canary Islands, exploring its growth, current trends, and future prospects.
Introduction
First, let's look at the current state of the market. The holiday home market in the Canary Islands has been growing steadily in recent years, with an increasing number of people looking to invest in property in this beautiful region.For example in 2022, 52% of all holiday homes in the Canary islands were purchased by foreigners (source). The popularity of the Canary Islands, especially for Europeans, is largely due to the added safety of traveling within the EU, its year-round warm climate, stunning scenery and varied landscape, foreign-friendly locals, and easy and affordable flights from most European main cities. This is noticeable when looking at the historical of flights coming outside on the graph below.
This combination is rather unique within Europe, and has resulted in the 14.5M tourist arrivals in 2022, being the number 3 visited region in Spain, behind Catalunya and baleares, its historical rivals (source). To put these numbers into perspective, notice that Spain is the 2nd most visited country in the world, behind France, and on top of the USA (source). That’s a lot of tourists, but most importantly it ensures a steady demand for holiday homes and short-term rentals.
Growth Drivers
One of the key drivers of the holiday home market in the Canary Islands is the increasing demand for second homes. Many people are looking for a place to escape to during the winter months, when the weather in their home country is less favorable. The warm climate, beautiful scenery, and safety of the Canary Islands makes it an ideal destination for this purpose, and many people are choosing to invest in a holiday home there. One interesting insight in this respect, sourced by our sister company Canary Home Invest (specialized in finding high-return holiday homes for foreign investors) is that the market holiday home supply consists in 87% of the cases to existing or renovated properties. Since the 2008 crisis, tourist area city halls in the Canaries have halted licenses for new real estate developments (source), to enforce a more sustainable market, and it worked.
From Traditional to Vacation Rentals
At the same time the holiday home rental market has been able to grow in numbers (compared to the negative growth of traditional accommodations) mostly from the conversion of traditional accommodation complexes into single-unit owned vacation rentals, owned partly by local middle-class investors, and foreign investors, and managed by home-owner associations. This has had a positive effect for the savings of 70k local families and for the local businesses generating €1.5B (source).
Vacation Rental Platforms
Indeed the main factor driving the growth of the holiday home market in the Canary Islands has been the rise in the last decade of online holiday rental platforms, such as Airbnb, Booking.com, HomeAway, and TravelAdvisor. These platforms make it easier than ever for people to rent out their holiday homes, and many property owners in the Canary Islands are taking advantage of this by investing in or turning their holiday homes into vacation rentals.
Legislation
Another important factor in this growth is related to legislation, which is also a major source of risk when buying a holiday home purely for investment purposes. Although the quick growth of the industry has sometimes caused friction with local residents in the islands, short-term vacation rentals in the Canary Islands go all the way back to the 80s. Our founder at Hola! Hosts, Victoriano, like many other locals working in tourism at the time, bought and short-let properties already then. It was done through calls, letters, and later faxes, so it is nothing new to the local residents of the Canary Islands. Indeed, as mentioned in the previous paragraph, the introduction of the platforms have enabled exponential growth, and that has caused issues.
These issues have mostly been negative for the traditional accommodations, leading to the creation of lobby groups to try to influence local legislation against short-term rentals. Although there’s been some intents to favor these traditional players, both the law and courts have supported the growth of the market, providing licenses and protection to holiday home owners, and it is highly unlikely, as the industry becomes more integrated to the local market and society, that that this permissiveness to the industry will ever change (source).
Current Trends
So, what are the current trends in the holiday home market in the Canary Islands?
Luxury Homes
One trend that is becoming increasingly popular is the development of luxury holiday homes. Many people are looking for a holiday home that offers all the comforts and amenities of their primary residence, and developers are responding to this demand by building high-end homes with all the latest features and technologies. These luxury holiday homes are often equipped with swimming pools, private gardens, and other premium amenities, and are attracting guests who are looking for the ultimate holiday home experience. It is obvious that this type of property provides the highest average daily rates, but what’s significantly eye-opening is that their occupancy rates are the highest of all segments too.
The demand for luxury homes right now in the Canaries is bigger than the supply. That became obvious especially during Covid, where luxury homes occupancy rates were the highest of all property segments. The worst off was for cheap accommodations (or the
segments competing on price), as you can see from the screenshot below (source). Notice that the 90th percentile are the luxury homes, and the 25th percentile are budget stays.
Rural Tourism
Another trend that is shaping the holiday home market in the Canary Islands is the growing popularity of tourists who come to enjoy the mountains (hiking, cycling, climbing, etc.), instead of the beach and the sunbed. Many people are looking for holiday homes in towns in the interior, where there was almost no supply, or the supply did not meet the expectations of a comfortable stay, so developers and investors are responding to this by building and renovating homes that not only meet the travelers expectations, but that can also be differentiated as unique stays that generate an extra margin. These homes often feature renewable energy sources, swimming-pools, bicycles, farm and winery visits, etc. One indicator of this growth comes from the appearance of more and more vacation rentals in non-coastal towns, as pointed out by ASCAV, the Canary Islands vacation rental association.
Professionalisation
Like any other market with a high volume of vacation rentals, the Canary Islands is also becoming more professionalized. In practice this means that the properties' management is moving away from the hands of owners who have been managing the vacation rental themselves, into the hands of professional property managers that increase the service level, leading to better returns. As we can see on the screenshots below from the top 2 tourism municipalities in the Canaries, some professionalisation is moving towards online providers like Bookiply, especially in the cost competing segments, and local providers, for the higher segment properties that need greater personalisation. As the market continues to become more competitive, we see this professionalisation trend one to continue in the coming years.
Differentiation
Another trend that has evolved partly due to the professionalisation of the industry, is differentiation. This is especially happening in the middle segments of the market. The lower middle segment is doing it to get away from being purely a price competitor, and be able to attract the better guests with a little extra disposable income in that segment. The higher middle segment is also upgrading and differentiating, in their pursuit to stay on the top segment of earners, who don't have the resources to enter the luxury home rentals.
Unique Stays
Another trend we have been seeing at Hola! Hosts during 2022 are the growth of the unique stays segment. As more professional investors and property managers pour in the region, and differentiation expands, unique stays become a very interesting option. In theory, a unique stay would be a cheaper investment, with the potential for higher incomes. The second reason is that the demand for high return properties is so high, and the prices so above a healthy mark, that investors have become creative, and unique stays are definitely pne way to do it. For example, investors are buying caves in thew mountains, adding superior interior design, and adding luxury amenities. Others are buying surf-life luxury vans, with all top-grade amenities and maps to the best spots where you can park right in front of the sea. Other are buying seaview property where it is not allowed to build, yet you can have an old renovated sail boat and provide a different experience. Check of the may cool options available in Airbnb here.
Covid-Fear Stays
While this might not be the best name for it, it is a trend that took over the market during the first hit of the Covid pandemic. There were several reasons for it but it translated into houses in the Canaries with own amenities and living space achieving some of the highest incomes levels in the history of the vacation rental industry in the islands. Since the islands were open to tourism, compared to most external and internal tourism destinations in the EU that were closed, and most hotels in the islands were closing due to not reaching the minimum occupancy levels to make their operations viable, European tourists with high disposable income levels demanded these top segment properties where they could isolate themselves and minimise the risk of getting Covid. While Covid is under control, the fear is still there. Even if the consequences of getting it nowadays are less severe on health, it still is an issue for traveling and the fear is still present, keeping this trend for isolation still alive and in high demand.
Future Prospects
Finally, let's take a look at the future prospects of the holiday home market in the Canary Islands. Based on current trends, it is likely that the market will continue to grow in the coming years, as more and more people look to invest in holiday homes in this beautiful region. This growth is expected to be less than in previous years and in a more sustainable way. The first because, as mentioned, the supply has very little room to grow, and the second because the sector is professionalizing, and because cheap stays are on decline due to an oversupply and a lack of differentiation. On the other hand, the higher segments of the market, especially the luxury market, is expected to grow. However, there are also some challenges that the market will need to overcome in order to sustain this growth. The biggest challenges will be ensuring that the holiday home market remains affordable for both buyers and renters. With the increasing popularity of the Canary Islands, prices are likely to rise, as seen in 2022 (source), and it will be important for the market to remain accessible to a wide range of people.
Conclusion
In conclusion, the holiday home market in the Canary Islands is a thriving and dynamic market that is driven by a combination of factors, including the warm climate, stunning scenery, connecting flights, safety, and low risk of demand disruption being part of EU, as well as the increasing popularity of online holiday rental platforms. The market is likely to continue growing in the coming years, but there will also be some challenges that need to be overcome in order to sustain this growth. Despite these challenges, the holiday home market in the Canary is at its historic peak, and there are no signs of freeze or contraction. Investors keep pouring in and yearly visitors keep growing, last year reaching its second highest in history, just two years after the worst time for tourism in history due to Covid.
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Why would you hire us to manage your vacation rental property in the Canary Islands? Here are eight reasons why your holiday home is best managed by Hola! Hosts. Read the post.
Ready to get in touch? We are glad to evaluate your property or help you find investment opportunities in the market. We make use of local industry data to identify the properties being sold that have the highest vacation rental potential. Contact us now!
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