How the SXSW cancellation is hitting some Austin homeowners

When SXSW 2020 festivals and conferences were canceled due to precautions related to the new coronavirus Friday, the fallout was immediate and brutal. Local service workers, small businesses, and artists were dealt a hard blow—they had lost $1,130,547 in income as of Tuesday afternoon, according to new local fundraising site I Lost My Gig—not to mention SXSW itself, which laid off almost one third of its 157-person staff Monday.

So far, the situation in the local hospitality industry is playing out similarly. While the impact on large hotels and national chains is significant, it’s the smaller local outlets—individual, local owners of short-term rentals, vacation homes, and small hospitality management companies—experiencing immediate, substantial losses that some might not be able to absorb.

According to short-term rental provider Transparent, Austin had 5,188 short-term rental listings advertised on three sites in January: 3,102 on Airbnb, 1,929 HomeAway, and 157 on Booking.com. Transparent also reported that there was a two-percent drop in unique short-term rental properties in 2018-2019.

Short-term rental research and analysis company AirDNA found 9,200 current listings in Austin, a difference that could be due to what is and isn’t registered. A chart by AirDNA comparing daily Airbnb rental revenues in March 2019 and March 2020 shows a dramatic drop—the day with highest revenue in 2019, for example, peaked at $2.2 million, while the peak revenue on its 2020 chart, projected for Monday, is $1.4 million—a number that could decrease depending on how many guests ultimately receive full or partial refunds.

AirDNA

Who gets hit the hardest?

In addition to hotels, overnight rentals can fall into several different categories. Large hotels might be able to take the hit from cancellation more easily, as can some short-term rental hosts who rent out all or part all or part of their homes only.

Small, local businesses that own or manage several properties, however, might not be able to absorb the blow of such a large-scale cancellation.

“Right off the bat, I had $20,000 in reservation refund requests” for guests who canceled in time to get a 50 percent refund, said Chareen Fisher, owner of Austin Company Top Trip Rentals. “That money just went out the door immediately.” She says she has had another $200,000 in refunds requested.

Fisher’s company is different from the majority of short-term rental companies in that it manages primarily properties it owns or leases—meaning that she’s out for much more than management fees when there are cancellations.

“My company is too small to absorb that,” she says. “Mortgages are still due, rent is still due.” Moreover, she says, the loss substantially affects her staff of 15 full- and part-time workers who clean and do maintenance on the properties, manage reservations, keep the books, and so on.

Fisher says she has purposely built her business in ways that provide flexibility as well as guaranteed part-time hours for a variety of workers who need both—such as single parents, students, and retirees. For those workers, in particular, the loss of expected hours and income from working during SXSW is significant. “I want to save my company, but I also want to save my people” by continuing to employ them, says Fisher.

At the same time, she says, “we value our guests” and understand that not getting a refund on lodging can also be a big loss for some of them—especially, she says, those who were attending SXSW EDU, an event for educators that directly precedes the bigger conferences and is attended primarily by people working in nonprofit and public sectors. The timing of cancellation for them was such that they no longer qualified for any housing refund at all. For some of those would-be attendees, she says, she’s considering giving more of a refund than required or a discounted stay if they offer proof that they have patronized local businesses during their visit.

“What I’m looking for is: How can we share this?” she says. “So that nobody suffers too much, but nobody holds the whole bag either.”

Guests and the big guys

Like many smaller local short-term rental companies, Top Trip books primarily through AirBnB and works with its cancellation policies. While Airbnb has extended its Extenuating Circumstances Policy to cover people traveling to and from from China, South Korea, and some parts of Italy, according to a Monday CNN Travel article, “That still leaves many travelers unprotected, including the thousands of people who’d planned to attend SXSW in Austin.”

While hosts and guest offered slightly different versions of what they were told about AirBnB’s refund policy in this case, all of them say that the company is considering the situation an “event cancellation” and that, despite the fact that the Austin mayor Steve Adler issued a declaration of disaster in the city in canceling the event, it would not give refunds unless there were travel restrictions in place.

The kindness of strangers

That assessment seems to ring true for Brooke Roeder Andrus, the founder and CEO of Emerson Guest Properties in Austin. Unlike Top Trip Rentals, Emerson operates as primarily a short-term rental management company for rental owners.

“The canceling of SXSW came as a shock to me and many of my friends and colleagues who work within the vacation rental industry,“ writes Roeder in an email. “We of course value the health and safety of Austin residents and visitors alike, but the impact on our industry is devastating.”

“Almost all of my clients own just one home in my management portfolio,” she continues. “They’re not investors or corporations; they’re people, local Austinites who travel for work or have moved and are doing what they can to hold on to their Austin homes, in the face of skyrocketing property taxes.”

“There is over $100,000 in SXSW reservations at stake for my property owners,” she adds. Like other owners, managers, and guests, she noted that standard cancellation policies are in place, “as this is a pro-active event cancellation, rather than a local health emergency.”

To mitigate losses, she said, Emerson is trying to get properties rebooked with new guests so it can offer further refunds to SXSW guests who have cancelled. She also encouraged guests to inquire with their credit card companies about whether travel insurance is part of their card’s policies.

The long view

As with the other aspects of the SXSW cancellation—the loss of the oft-cited $365 million economic impact on the city—assessment of the long-term impact on the local short-term rental market is just beginning.

”It’s obviously dire for the hotel space,” says Jan Freitag, senior vice-president for lodging insights at STR, a global consultancy focused on the hospitality industry. “They’d planned on this event to happen and now have very few days to fill the holes that the cancellations have left.”

”We don’t have good insight into the short-term space,” he says. “I think it’s possible that some short-term hosts were actually just opportunity hosts. If you use Airbnb to supplement your mortgage, you aren’t really going to get hurt.”

On the other hand, he adds, “There are people who made this a business, and they’re going to get hit with a lack of room demand, just like hotels do. Question is, what they do with the pricing. Will they fill it up at any rate? That’s the wild card. What’s their variable cost, what’s their monthly mortgage plus cleaning fees, and how low can they go?”

Freitag says he’s “a little worried” about a “large-scale economic impact” from the new coronavirus worldwide, in which “we’ll find ourselves in a gig economy where everybody is an Uber driver and everybody is a host. Then you have a possible uptick in new supply, of people saying I don’t have my job anymore, I’ll supplement my income by renting out a room, moving in with a friend and having the unit on the market, which will further deteriorate pricing. That’s a glass half-empty point of view.”

As far as locals are concerned, that impact could be imminent. “SXSW is far and away the biggest week of the year, income-wise,” writes Roeder Andrus. “The income generated by SXSW reservations helps cushion owners’ financial reserves throughout the year. It is an essential part of the financial model that makes home-sharing in Austin viable.”

Fisher express similar sentiments. “[SXSW] revenue helps us for three months, through the slower late spring and summer up to big fall events. There aren’t 10 other days on the calendar that are equal to SXSW.”

It is putting her business in jeopardy, forcing her to make hard decisions about how to recuperate. If she does fold, she says, “that’s 15 people’s jobs, future bookings I have to cancel,” and properties she would need to sell quickly,

“In this city, if you do anything in hospitality downtown,” she says, “you’re just waiting for SXSW each year. It’s the thing that carries you through. No one ever thinks there’s going to be no SXSW.”

Additional reporting by Patrick Sisson