Is there a chink in Nantucket’s economic armor?
There are many things that fuel Nantucket’s economy and one of the island’s most crucial is summer rentals. You know, the “typical” four-bedroom, four-bath house with a pool for $35K per week. But for the first time in several years, even local real estate brokers are grudgingly admitting…
Rental activity is down.
More often than not, it is hard to get a straight answer from Nantucket’s “real estate experts.” It’s a tough wall of silence to break through especially when it comes to the true story on rental and sales activity.
On Nantucket, some have estimated that there are over 300 real estate agents who have hung some sort of “shingle” with approximately 200 being truly active brokers on-island. If you are wondering, that works out to roughly six agents per square mile. But after a few years of skyrocketing weekly summer rental rates and the associated expenses such as food, gas, ferry tickets, drinks and dinner in town, babysitters and bike rentals, are we starting to see some push back on the romantic notion of an affordable summer vacation on Nantucket?
There are a handful of trusted, real estate professionals that I often go to for the pulse of the island’s real estate market. Their honesty and track record of customer loyalty speaks volumes. So, when one of them says: “Summer rentals are down - probably 15 percent to 18 percent - but to be honest, I bet a couple offices are down as much as 30 percent from last year”… I believe them.
Owning a Nantucket vacation rental property has been a tremendous investment. Recently, it has produced phenomenal returns due to the spike in weekly rates not to mention the fact the value of the property has increased too. With momentum building in the summer rental market over the last few years, more houses have joined that rental pool.
As Kenny Bania would say, “That’s gold, Jerry! Gold!
Immediately after the initial COVID-19 scare, homeowners started jacking up their weekly summer rental rates. Houses that rented for $10K per week in 2020 are now $16K. Houses that rented for $25K with a pool two years ago are now renting for $35K and up. Compounds that listed for $35K are now advertised at over $50,000 a week. As potential renters flocked to Nantucket and a flight to safety, homeowners gleefully advertised unprecedented rates generally with brokers’ support. Supply and demand worked in the homeowner’s favor. If you wanted to vacation on Nantucket in the summer, tenants had few alternatives but to “pay the man” and the exorbitant rental rates plus expenses plus an additional 11.7 percent short-term rental tax.
But, even gold can fade. So far this season, things are not so robust. As several brokers told me: “Many of my clients are going to Europe. For $35,000, you can have a hell of a nice vacation in Europe this summer. If you go to a place like Portugal or Scandinavia, you can avoid summer traffic, the angst associated with securing a ferry reservation and the ridiculously high weekly rental rates on Nantucket.”
In addition to unusually high rental rates, many others who consider themselves “routine summer renters on Nantucket” are also citing general increases across the board on Nantucket as a reason to pause. From taxi and Uber costs to hourly charges for babysitters & cleaners to the cost of gas to prices at Stop & Shop, potential summer vacationers are indicating that enough is enough and a house off Fairgrounds Road for $28K / week is not a good value.
“Over the last 30 to 40 days, things have been quiet. Daffodil and Wine Festival were just OK but they are more festival weekends versus indicators of the summer, rental market. In addition to high rental rates, one topic that I routinely hear back from my clients is the fact that dining out on Nantucket is now an expensive luxury,” said one Main Street broker.
He added, “When you are paying $20 for breakfast, $30 for chips, a drink and a sandwich, $40 for an appetizer and $75 for a main course entree per person, that’s a tough nut to swallow for a family of four. However, when you can’t even make a dinner reservation, what good is it anyway?”
There’s a housing debate now on two fronts. On one hand, you have the local population focusing on affordable, year-round housing. On the other hand, you have our summer visitors searching for affordable weekly rentals.
It is dripping with irony especially when it is hard to find any local sympathy for someone willing to pony up $30,000 per week for a summer rental when a noteworthy portion of the island’s population cannot find suitable year-round housing. And yet, the loss of a significant number of summer rentals would have a negative ripple effect on the island.
With Memorial Day looming on the immediate horizon, are homeowners who rent during the summer months trying to take advantage of the feeding frenzy that has been going on for several years by ramping up their weekly rates so high that it is turning off a significant number of potential customers?
To answer that question, here’s some general observations from a few trusted local, real estate professionals:
- More clients are now asking for one-week rentals vs. two weeks.
- Demand is down in almost every category including high-end rentals over $35K per week.
- To date for the 2023 summer season, the total number of secured rental dollars has decreased island-wide vs. the same period in 2022.
- The lack of reliable, turnover cleaning staff has negatively impacted summer rentals.
- Homeowners have continuously raised rates over the last three to five years but have not necessarily continued to reinvest in their property over that same period.
- We have created such a high level of expectations, and along with that, a false sense of reality when it comes to potential rental income for property owners.
- There’s simply too much rental inventory right now.
- For homeowners who bought within the last two to three years, they have an unrealistic expectation of rental income activity.
- The pace of sales and rentals from a few years ago was unsustainable. It only stands to reason that rentals and rental income could decline too.
- For the first time in a long time, owners are now negotiating with renters and accepting below listed offers. Right now, it’s a renter’s market.
Historically, Nantucket has always had a strong last-minute rental push. As some of the local brokers have said, “It is still a tad too early to jump to any rental conclusions until after we slide past Memorial Day Weekend and into June.”
Moreover, even Nantucket’s Chamber of Commerce Director, Peter Burke, agreed when I presented him with this information. When asked for the Chamber’s perspective, he said: “It’s too early to draw any concrete conclusions."
Outside of a handful of agents, not many brokers want to talk about this current slump in rental activity. For many years, most brokers treated summer rentals as a nuisance since weekly rates were low and a typical 15 percent split commission with the office did not amount to very much. Now, with rents spiking over the last few years, active rental agents are securing a handsome revenue stream. But, the current numbers don’t lie. Rents are down.
The conundrum for Nantucket is finding that healthy balance. Undoubtedly, there are many on Nantucket who see this potential dip in the rental market as a good thing. There are just too many people on Nantucket in the summer. Consequently, a drop in the potential number of renters is actually a good thing. It means less traffic - less congestion on the beaches - less noise. Better yet, the potential of securing a reservation at Nautilus for dinner just went up.
But, it’s not that easy. Whether you like it or not, Nantucket needs a healthy summer rental market. If you don’t believe me, ask anyone who owns a business that’s tied to the summer season or works for a business that’s tied to the summer clientele. Frankly, that’s just about everyone who lives on Nantucket year-round.
It will be interesting to see and hear what comes out over the next 30 days. But make no mistake, there’s a slump going on right now in the summer rental market and even the brokers are quietly conceding that fact. When summer officially begins on June 22nd, let’s see where we stand and whether or not we can break through the “realtor’s wall” and get a true and accurate picture.
For those of you who don’t believe what a broker tells you, the answer will be easy to see. If you can get a spot with some breathing room at 40th Pole or a tee time at Miacomet Golf or a dinner reservation at The Languedoc Bistro or a ticket to the Revivalists at the Box, you’ll have your answer…
Summer rentals are down.