On the Right Side of the Short-term Rental Market in Fortaleza

Friday, July 31, 2009

Dear Reader,

The right pre-construction condo deal gets me excited. I look for units with the prospect for capital appreciation and strong rental yields. Units that will work as short- or long-term rentals…units that will appeal to holidaymakers, out-of-town executives, young professionals, or retirees.

A broad rental appeal means you aren’t dependant on one particular market. A strong rental market confirms the presence of an end user. This is the most important factor when analyzing a pre-construction deal. Better again when there is a limited supply of developable land. Your competition will remain limited, too.

You know the reasons I’m bullish on Fortaleza. I recommended Beach Class and Landscape units here because they offered the potential for both strong rental returns and capital appreciation. Those of us who have invested along Fortaleza’s boardwalk will face limited completion from new inventory. Once the Landscape site is developed, that’s it. No more development… unless developers start flattening existing high-rise buildings.

One of our readers put the short-term rental market in Fortaleza to the test. He wanted to spend a chunk of time in Brazil along this stretch of coast using Fortaleza as his base. The good news was that the short-term rental market was strong…the bad news was that he couldn’t find a short-term rental in the prime Beira Mar (boardwalk) area. An exhaustive search of agents proved fruitless.

Holidaymakers, business travelers, company executives, and retirees from southern Brazil drive the short-term rental market in Fortaleza.

The units in Beach Class and Landscape will completely raise the bar in terms of the quality of units that are available for short-term rental. In fact, I have visited flats (serviced condo suites) on the short-term rental market in Fortaleza. Their amenities are limited to restaurant, laundry, and room service. They are dated and of average quality. The units in Landscape will have five-star amenities. Pools, gyms, health and beauty centers…all the bells and whistles a business traveler looks for… including meeting rooms, and party rooms for when the work is done.

I expect units in Landscape and Beach Class to rent fast and command a premium.

Condo hotels and short-term rentals are on the up globally. They are more cost effective for families and far more pleasant for the business traveler than a hotel. The market is moving toward short-term rentals like these commanding a premium over hotel rooms. I know I will pay a premium whenever I can to avoid being stuck in a hotel room. On the hotel front, we also have limited competition along the Beira Mar. Again, lack of developable land means new competition on the hotel front is unlikely.

Ronan McMahon