The top 3 reasons why hoteliers should be monitoring the short-term rental industry

The knowledge and experience obtained on your market pre-pandemic - its seasonality, recurring events, demand patterns, pricing and competitive landscape - are now less clear-cut.

While the pandemic’s disruptive grip on the industry may have loosened, you are now seeing different traveler behaviors and expectations. One trend that looks set to stay is the rapid growth in the short-term rental space.

Led by companies like Airbnb and VRBO, the short-term rental industry has grown significantly in recent years and it is disrupting the hotel industry. The demand for short-term vacation rentals has been gradually increasing since the introduction of Airbnb in 2008 and this growth was accelerated by the pandemic when people turned to short-term rentals as a safer way to travel.

If you are a hotel revenue manager, it’s important to understand that the rise in short-term rentals is not just a trend or supplement to the hospitality industry but a silent competitor that should now make up part of your competitive set.

Here are three important reasons why you should now factor short-term rental properties into your hotel revenue management strategy.

Hotels and Short-term rentals are sharing the same audience

A recent phocuswright study found that in the US, 64% of people who booked a holiday rental considered a hotel for their stay when they were looking to book their accommodation. Next to that, an older study by Goldman Sachs concluded that once travelers have experienced a short-term rental stay they are much less likely to prefer hotels after.

A 2021 survey shows this was due to several factors. When asked why they would rather rent a home for a short-term stay than stay at a hotel, survey participants ranked location, better value for money and more living space as their top reasons.

On the other hand, with hotels, guests have a good sense of what to expect given that they provide a predictable level of service, cleanliness, quality and convenience depending on the brand, star rating, and cost.

Though they both offer something different, guests are increasingly viewing short-term rentals and hotels as equally viable accommodation options and will pick one or the other based on their specific needs, and that individual trip. Whether for leisure purposes, business travel, a long-term rental or a short period of time, the lines between the hotel and short-term rental space continue to blur.

Adding to the sense that there is a growing convergence of the two different offerings is the fact that metasearch, booking and rental platforms, such as Booking.com, Airbnb and Expedia have increasingly been selling short-term rentals and hotel rooms. Prospective guests now have more choices than ever before, all within their favorite booking platform.

With a shared audience, hotels and short-term rentals are competing for the same guest. In as much as short-term rentals are a viable accommodation choice to a hotel’s prospective booker, with the right offering, hotels might also appeal to guests whose initial search criteria might have led them towards an airbnb.

Takeaway

Whether the goal is to win back market share or create offerings that might appeal to a short-term rental-seeking audience, you and your commercial teams should have a complete overview of your market.

With a comprehensive view of your market, you can compare your offering - in the same way that your guests are doing - and benchmark it against similar competitors, products and overall guest experience.

To keep your competitive edge, you need to know what's being offered in your market and match it. When nearly half of your potential guests are also looking at short-term rentals before they book, it makes sense that you do too.

Short-term rentals are rapidly professionalizing

There’s been remarkable global growth in the supply of short-term rentals over the last few years, which has been matched by the demand for them. Airbnb’s latest financial report points to its best-ever year, while Skift’s Travel Health Index also paints short-term rentals in a positive light compared to other sectors of the industry.

Powered by renowned tech platforms like Airbnb and VRBO the process for homeowners to list their properties is simplified. While safety nets, such as AirCover and Ask a Superhost, have made onboarding smoother for hosts and provide peace of mind to guests.

In fact, a large percentage of short-term rental accommodations are now professionally managed by property managers and management companies who are responsible for daily operations like cleaning and check-in, marketing, revenue management and distribution strategy.

In 2023 43% of short-term rental property managers are updating their rates daily, and those who adjust their rates daily (usually with dynamic or automated pricing) have enjoyed a convincing 97% average growth in revenue over 2019.

In recent years, Europe has seen 21% more professional vacation rental property supply share since 2018, Asia 62%, South America 50%.

Technology usage - including property management systems, channel managers, and dynamic pricing - amongst vacation rental managers rose from 74% to 80% in 2022, driving 85% more revenue growth, against 49% growth for those without a data-driven approach.

As the short-term rental space has grown in popularity, in many cities it has had a major impact on the local real estate market, residential availability and house prices - leading to more regulatory measures being implemented in various metropolitan areas.

Well-implemented and enforced regulations will mean an increased dependence on professionally run and managed properties.

Takeaway

The short-term rental market has come of age in the last few years and as it becomes more regulated and competitive, it will likely become even more professional and technologically sophisticated.

An increasingly professionalized market means that it’s important you know exactly what you’re up against in the vacation rental industry and ensure you have full visibility of all the potential blind spots in your market.

Short-term rentals are an early indicator of future hotel demand

With an increase in the supply of short-term rentals, it would not be surprising to see a dip in occupancy rates. However, year-on-year growth shows that while some markets might be approaching saturation, Airbnb occupancy for the months of December, January and February soared an impressive 96% higher in 2022/23 compared to the same period in 2019. 

While this may be positive for short-term rental owners it provides a unique opportunity to get a better understanding of your own market.

According to research conducted by Lighthouse, there is a positive correlation between short-term rental occupancy and hotel booking pickup. Crucially, short-term rental bookings tend to be made much earlier.

In other words, alternative lodging availability tends to decrease before hotel availability for the same dates. As they both follow the same pickup curve, short-term rental pickup is also an excellent early indicator of future hotel demand.

Depending on the destination, that hotel pickup lag time can be between 14 to 35 days after short-term rental pickup, giving hotels an extended window of opportunity to monetise elevated demand, before the rest of their market.

Takeaway

If you're in the hotel industry, keeping an eye on short-term rental occupancy can actually give you a competitive edge.

You can incorporate hotel pick-up lag in your routine to check if you need to adjust pricing and marketing activity for specific periods in the future. By monitoring short-term rental data, you'll be able to forecast high and low-demand dates earlier than your traditional hotel compset, extending your window of opportunity to adjust your pricing and marketing strategies.

Summary

The days when short-term rentals were considered a passing craze are long behind us. Today, they have firmly established themselves as an essential part of the modern travel experience, here to stay for the long haul.

For the hotel industry, this provides both a challenge and an opportunity.

By incorporating short-term rental data into your revenue strategy, you can see what is happening in your market and assess how it may affect your hotel. You can then optimize your offering with a more competitive long-stay rate, for example, or by adjusting your amenities to include aspects that might appeal to family travelers.

With a comprehensive view of your market, you will be able to spot unique opportunities and gain a competitive edge over your traditional compset, while also competing with the new, silent competitors.

Incorporating short-term rental data with your traditional compset means you can make better pricing decisions based on demand, occupancy, and rates in your complete market.

Lighthouse saw that hoteliers have a major blindspot across their competitive landscape. Rate Insight+ is the hotel industry’s first solution to bring together short-term rental and hotel data into a single platform.

In doing so, it provides a holistic view of the complete competitive landscape, and a single source of truth in one simple and easy-to-use tool so that hoteliers can understand the impact of short-term rental supply, and still gain a competitive advantage.

Introducing Rate Insight+