AirDNA has just released its latest report in partnership with STR on the changing dynamics of the lodging industry, as short-term rentals gain ground over hotels on the whole but find difficulties in larger cities.
Some key findings for 2023 are:
- In Q2 2023, short-term rentals saw a year-over-year growth in demand of 11.7%, compared to a slight decrease for hotels at -0.6%. This is a shift from the pre-pandemic era when both sectors experienced 25-30% year-over-year growth.
- In smaller cities and rural areas, short-term rentals enjoyed a 24% surge in demand, while hotels saw no growth (0%).
- The supply of short-term rentals grew by over 15% year-over-year, outpacing hotels, which lagged behind at under 5% due to pandemic-related construction delays.
- Hotels experienced a 7.2% year-over-year Average Daily Rate (ADR) growth, whereas short-term rentals saw a more modest increase of 2.8%.
Demand Shifts Unsettle the Playing Field
Before the pandemic, both hotels and vacation rentals enjoyed growth in demand (+30% and +26.4% year over year respectively), but by Q2 2023, growth had decelerated to 11.7% for rentals, and -0.6% for hotels. What changed? The return to European travel is partly responsible, though this affects both rentals and hotels. However, “bleisure” – the fusion of business and leisure travel, may have upset the balance. The remote work revolution has prompted many to extend their stays, leaning towards rentals with more amenities, and the trend towards less-populated or rural areas, where rentals make up a larger proportion of supply, also gave the short-term rental sector a boost.
Specifically, by May 2023, short-term rentals in small city/rural locations had witnessed a demand growth of 24%, compared to 0% for hotels. Rental demand growth also exceeded hotel demand growth in mid-sized cities, suburbs, mountains/lake resorts, and coastal resorts. However, in larger urban environments, both vacation rentals and hotels saw a 12% growth in demand, thanks to stricter rental regulations and an abundance of conventional hotel rooms.
The Supply Side of the Story
When it comes to supply, vacation rentals are again ahead of the curve. Year-over-year supply growth for short-term rentals stayed above 15%, while for hotels it lagged below 5% between Q1 2022 and Q2 2023. Two key drivers? Size and location. Short-term rentals are expanding faster in rural and suburban areas, at 18% and 14%, respectively, while in urban areas, where short-term rentals are more comparable to hotel rooms in their size limitations, they’re growing at 8%. Plus, larger properties are gaining popularity – over 300,000 three-bedroom units became available, outpacing one and two-bedroom units by more than 70,000 each. Three-bedroom units have also seen the highest growth in demand of any size of property.
Rate Realities: ADR Trends
The average daily rate (ADR) paid has also changed dramatically over the past few years. Although hotels saw faster ADR growth (7.2% YOY) compared to short-term rentals (2.8%), this growth was largely driven by performance in the top 25 markets, which include urban areas and mountain/lake resorts. Short-term rentals are still 20% cheaper than hotels in urban areas, but rentals are slightly more expensive in other location types, reflecting the larger spaces and amenities that they are able to offer outside of cities.
What Lies Ahead
The pandemic was a catalyst for the lodging industry, speeding up existing trends and creating new ones. However, as short-term rentals maintain and even grow their share, hotel operators can learn from what draws guests to short-term rentals, just as rental operators have learnt from hotels to professionalize. As we navigate the landscape that lies ahead, one thing is clear: the accommodation game is changing, and competition is only getting fiercer.
The article New report from AirDNA and STR: Why rentals are gaining ground over hotels first appeared in TravelDailyNews International.
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Author: Vicky Karantzavelou