Early Days (1950-1990)
People have been renting out rooms to travelers for centuries! However, the earliest form of short-term rentals (STRs) as we know them today started in the 1950s, when vacation rental owners in well-known tourist destinations started renting out their homes to other travelers through newspaper ads. In 1985 the Vacation Rental Manager Association (VRMA) was founded by seven managers, formalizing the vacation rental industry. Later, a wave of British investors and property managers made investments in the Orlando region in the 1990s, where there continue to be pockets of property ownership and management.
Internet Arrival (1995-2014)
The arrival of the internet was a major growth catalyst for the STR industry, expanding rental owners’ marketing reach while reducing the costs of renting a property. In 1995 Vacation Rental by Owners (VRBO) launched its first rental property in Breckenridge Colorado. Just 10 years later, Homeaway merged with 5 other sites and purchased VRBO, its combined inventory of properties crossing into the hundreds of thousands. In 2008 Airbnb was founded as an online marketplace, originally for people to rent out rooms in their homes and pay with a credit card, further diversifying the vacation rental industry.
Growth Era (2014-2020)
By 2013, 14% of travelers elected to rent a house or apartment for at least one trip. By 2015 Homeaway alone had more than 2.8 million rooms, the equivalent of the fourth largest hotel chain in the world. Just two years later Airbnb surpassed 4 million listings–more units than those held by the top five hotel brands (Marriott, Hilton, Intercontinental, Wyndham and Hyatt) combined.
COVID (2020-2021)
The onset and impact of COVID in 2020 was the most difficult period for the hospitality and STR industry in modern history. The number of listings in Airbnb decreased from 7M to 5.6M (-20%) and the number of bookings dropped from 272M to 193M (-29%) compared to the previous year. The hotel industry was hit even harder with occupancy declining 33% and revenue per available room (RevPAR) declining by 48%. Despite the severity of business withdrawal in Spring and Summer of 2020, the STR asset class showed its resiliency. After lockdown restrictions eased, Airbnb recorded a global total of 6M listings and 300M bookings in 2021, demonstrating a return to travel, and an increase of industry asset utilization which has proven sticky through Fall 2022.
Short Term Rental Future
The future looks bright for the short term rental market. According to data provider AirDNA, the number of listings (supply) in the US is expected to increase by 21% in 2022 and nearly 9% in 2023, while demand growth is expected to increase by 20% in 2022 and by nearly 6% in 2023. Pricing for stays in the US is also expected to increase, with Average Daily Rate (ADR) expected to increase by over 6% in 2022 and over 3% in 2023. By contrast, US timeshares, the mature cousin of the STR industry, have struggled to regain footing after the pandemic and are down 23% in 2022 from pre-pandemic highs in 2019.
Short-Term Rental Industry Outlook
U.S, STR Historical Performance & Forecast (2019 - 2023)
|
2019 |
2020 |
2021 |
2022 E |
2023 E |
|
|
Available Listings |
1,178,989 |
1,042,849 |
1,059,541 |
1,227,681 |
1,387,104 |
|
Listings, % Change |
10.8% |
-11.5% |
1.6% |
20.6% |
8.6% |
|
Demand, % Change |
21.0% |
-16.2% |
21.3% |
20.3% |
5.7% |
|
Occupancy |
53.5% |
53.2% |
60.7% |
58.2% |
57.4% |
|
Average Daily Rate |
$213.32 |
$232.79 |
$260.97 |
$277.53 |
$286.91 |
|
ADR, % Change |
1.4% |
9.1% |
12.1% |
6.3% |
3.4% |
Source: AirDNA
There are new underlying trends helping to fuel STR growth, including hygiene preferences, and an increasingly remote workforce with flexibility to travel and stay in STRs.
Consumer preferences based on health or hygiene factors has increased. Over a year after pandemic lockdowns in the U.S. occurred, medical doctors were still recommending social-distancing vacation STR accommodation over hotels. And according to a recent study published in July 2022 by Makarand Mody, Boston University Professor of Hospitality, hygiene was a substantial factor in consumer’s decisions whether to stay in an STR or a hotel.
The transition from on-premises workplace to remote work is also fueling short-term rental growth. According to a study by McKinsey in June 2022, 58% of US job holders —the equivalent of 92 million people—say they prefer to work remotely at least part of the time. The McKinsey study found that 87% of the workforce already works at least one day a week outside of the office, and 32% of workers are fully remote. Sr. Travel Writer for NerdWallet Sam Kemmis found that in Q1 2022 “nearly 25% of job postings at the 50,000 largest companies in the U.S. and Canada were for permanently remote positions” compared to the 4% of jobs pre-pandemic. MBO Partners, a leading independent talent marketplace and research firm, reported that the number of Americans who consider themselves digital nomads in 2022 grew 131% since pre-pandemic, increasing 9% over 2021 to 16.9 million people. Surveys note that a third of digital nomads prefer staying in short-term rentals, and by the end of 2021, one in four remote workers took extended travel (10+ days). In May 2022 Airbnb said that long-term stays (28 days or more, often attributed to digital nomads) “continue to [the] fastest-growing category by trip length” with more than double the bookings vs. 2019.
Number of Digital Nomads, by Worker Type
2019 - 2022; in millions
Source: MBO Partners
The STR industry is still in the early stages of its growth. It is these growth tailwinds that led Brian Chesky in April 2021 to say: “To meet the demand over the coming years, we’re going to need millions more hosts.”