Rent stagnation expected to last throughout 2020 makes home rentals unprofitable overnight.

It seems that in just a few months, this pandemic will make on Croatian property market what could not be achieved in several years of efforts - It restrains the growth of short-term tourism rentals, develops the long-term rental market, and regulates prices by increasing supply thus making it more accessible for long-term rentals, but also for purchases.

The process has already begun, as indicated by available numbers, and more serious analysis is expected after the end of the strict social distance regime, say our market sources. Namely, due to the expected demand decline that is expected to last throughout 2020, home rentals have become an unprofitable business overnight, and home owners in Croatia, like globally, are turning to long-term rentals, a form of business that has long been neglected in Croatia due to the growth of tourism. In Croatia, the situation is specific because the objects for short-term rentals are the most numerous on the Adriatic, where, except in larger cities, there is no demand for long-term rentals and that part will suffer the most in this crisis. Globally, the transition to long-term rentals as a rescue measure is also announced by Airbnb, which last year had a collaboration with Croatian homeowners of 162,000 objects. In terms of strengthening long-term rentals in Zagreb, it has already begun, as well as the downward trend in rental prices. It can be seen from advertisements that prices of apartments in Zagreb have decreased on average by 3% compared to the previous month. In addition, due to the shock, prices in the city centre have fallen by as much as 10%. However, rentals in Zagreb are still more expensive than last year. The current average monthly price of renting an apartment in Zagreb is about 4,700 kuna. The largest decline in rental prices is found in the smallest apartments and those above 100 square meters. The largest decline in prices has been recorded in the 4th district of Stenjevec, Novi Zagreb West, and Gornji Grad - Medveščak, between 7 and 12%. Boro Vujović, director of the Opereta agency, points out that a rise in the supply of long-term rentals can be seen, with a growing number of online postings. "We already have twice as many offers for renting apartments as for buying them, there are those who have decided to turn from selling their apartments to renting them out, but there are certainly also those who have switched from short-term to long-term rentals due to this situation," Vujović revealed. Vujović believes that it's still early to talk about the impact of this trend on market prices, as the current demand is "on hold". "Now, the ones who are not forced to do so are not moving, and until the situation with this crisis stabilizes a bit, we cannot expect any dynamics of the market. Certainly, according to the laws of the market, prices in a situation where supply exceeds demand could fall, but now it's too early to make such announcements," says Vujović. According to eVisitor data, at the end of March, there were a total of 1.08 million objects in family accommodations in Croatia, with 6.13 million beds, which is about 5,000 more objects than in the same period last year and 250 more than at the beginning of 2020, which means that the trend of growth in short-term rentals was valid until a few weeks ago. An economist from the Economic Institute, Marina Tkalec, recalls that in the larger Croatian cities over the past few years, there has been an increasing trend of converting apartments for long-term rentals or renting out apartments for short-term rentals. "This has created pressure on property prices in general, but especially on long-term rental prices, which have disproportionately affected vulnerable groups of citizens. I believe that part of the property owners in the larger cities, at least those less prone to risk and uncertainty, will return their properties to long-term rentals, which could lead to stabilization of long-term rental prices, as well as property prices in general," said Tkalec. However, she believes that the transition of residents from tourism to other activities will depend on the duration of the epidemiological crisis, if it ends quickly, the adjustment period will be weaker and we will return to the old situation faster. Tkalec notes that a larger part of the short-term rental market is located along the coast, in areas that are not attractive to typical long-term renters such as students, employees and young families. So, it's hard to expect a reaction from that part of the market, they simply don't have many options now and are hoping that the pandemic will pass quickly and that some part of the season will be saved. Exit through the crisis through a strengthening of long-term rentals was also announced by Airbnb, the leading platform for renting out accommodations, which has already been heavily affected by the pandemic, disturbing their plans to go to the stock market this year. As Airbnb's founder Brian Chesky highlighted, the way of life and work is changing and becoming more flexible, which means that a significant number of people do not need to be tied to one place, from those who need a temporary home for studying to employees who change locations or families. The announcement of the shift in the platform's strategy that relied on short-term rentals for tourists for its growth over the past decade, comes after a series of studies published over the past month, that property owners are returning to traditional rental markets. James Chappell, global business director, Horwath HTL, notes that Airbnb has little influence on the switch to long-term rentals, which ultimately depends on property owners' decisions but since they, especially this year, do not have many options, a significant number is expected to use this opportunity.

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