Short-Term Rental Demand On the Rise

Demand for US short-term rentals accelerated in October, reaching the highest growth rate since the onset of the global pandemic, according to Jamie Lane, VP of Research, AirDNA, which tracks data in the sector.

As concerns about COVID-19 eased, demand in October shot up by 12.2% compared with October 2019 and 35.8% higher than in October 2020. This was a significant gain from the 4.3% increase in September and a drop of 1.5% in August.

Average daily rates (ADRs) are increasing as well, growing to $243.28 in October, up 24.7% over 2019.

“The combination of rising rates and demand means that more revenue than ever is coming into the sector,” according to Lane in AirDNA’s October report.

“Strong growth should continue, building on rising booking and revenue numbers reported by Airbnb and Vrbo in Q3. US short-term rentals (STR) generated 40% more revenue in October 2021 than in October 2019, up from an average of 24% more in Q3 2021 over Q3 2019.

2022 Expected to Outpace All Other Years

While the growth of overall STR listings grew in 2021 by 9.4%, 2022 is currently expected to outpace all past years with a listing growth of 20.5%, Richard Chandler, Director, Product & Data – Migo, Flexible Living, tells GlobeSt.

“Occupancy rates actually set records this year as the demand for short term rentals increased 27.5% in 2021 while new listings only increased by 9.4%; more demand than there were listings in most markets,” Chandler said.

“While demand in 2022 is expected to increase by 23.4%, listing growth will also substantially outpace demand by a much smaller margin than in 2021. This margin is so small that occupancy and ADR will most likely decrease moving into 2022.”

Overall, 2022 is currently forecasted to lose about 1% in occupancy and 7.1% in ADR due to strong listing growth, Chandler said, and he believes the number of listings will not reach pre-COVID levels until early in 2022. There were 1.175 million listings in 2019.

Migo is an amenity that enables multifamily owners and residents to participate and profit from home sharing on Airbnb. 

STR Providers Offer Variable Business Models

While its effects are still largely unknown at the moment, the emergence of the Omicron variant could have an impact on this, as well as other real estate sectors. 

However STR is an asset class that fits with the behavioral trends that have arisen from the pandemic, Roman Pedan, co-founder & CEO, Kasa, a national short-term rental operator, tells GlobeSt—namely, “having flexibility in everything we do, particularly where you work and live. People are choosing employers who allow that freedom.”

Kasa works with institutional apartment owners so that a portion of a community’s units are available for short-term rental for any length of stay. The average stay at Kasa is five to seven nights. 

Kasa’s model enables investors to benefit during “good” or “high demand” times and earn additional revenue that could come from it, while at the same time, should things slow, operators can convert those short-term rental homes into more traditional, long-term rentals, which helps to maintain revenue flow.

During the pandemic, Kasa outperformed hotels of similar quality in its areas by 2x and 3x in average revenue per room. Its rates and occupancy continue to perform well, with rates up more than 80 percent since January and occupancy maintaining a 65 percent to 80 percent range.

“Business travelers are finding that longer stays (of about a week or so) can give them a sample of what it’s like to live in that area as they decide where to live more permanently,” Pedan said.

“When we started five years ago, we had to explain to investors what short-term stays are and how they’d benefit from offering them. Today, everyone sees this and understands it. Soon, it will be unimaginable to think that a community would not have a short-term stay component to its business plan.

Cities Still Avoided 

Even with record numbers of people staying in short-term rentals, guests have yet to find their way back to cities, Lane said. 

“A combination of remote work, closed international borders, unvaccinated children, and avoidance of large crowds has limited demand recovery,” he said.

As of October, demand was still 20% below 2019 levels in the 50 largest U.S. cities, while demand outside of those cities, including destination/resort markets and small and midsize cities, was 33.8% higher than 2019 levels.

However, from January 2021 through July 2021, demand recovery rose consistently. The percentage of decline over 2019 improved from 50% lower in December 2020 to only about 22% lower in July. After that, the increase in COVID-19 cases associated with the Delta variant caused demand to shrink again in urban areas.