The ultimate guide to the short-term rental industry for hoteliers
A short-term rental refers to the practice of renting out a property or a room for a short period of time, typically from a few days to a few weeks to travelers and guests.
The short-term rental industry has grown considerably over the past few years, led by companies like Airbnb and VRBO, and if you weren’t already aware, it is disrupting the hotel industry, and it is here to stay.
This guide will give you a complete overview of the short-term rental industry, its impact on the hotel industry, and what you can do to stay on top of this new competitor.
What are short-term rentals?
Short-term rentals refer to properties or rooms that are rented out for brief stays as an alternative to traditional hotel accommodation. They usually offer travelers more space, privacy, and a local experience.
The short-term rental encompasses all types of properties or rooms that are rented out for brief stays. This can include everything from a spare room in someone's home to the entire space of a fully equipped vacation rental property, a beachfront villa or a secluded ski lodge. The options for consumers are almost endless.
The short-term rental industry has seen significant growth in recent years, driven by the popularity of well-known short-term rental platforms like Airbnb and VRBO (which stands for Vacation Rental By Owner).
Airbnb and VRBO are the two most significant players in the short-term rental industry. Both operate online, connecting property owners with travelers searching for short-term rental accommodation.
Airbnb, founded in 2008, has since become an instantly recognizable brand and the largest short-term rental provider in the world, offering an incredible 6.6 million listings in over 100,000 cities globally. VRBO is also a major operator, offering approximately 2 million listings.
Airbnb, VRBO and smaller platforms within the short-term rental offer travelers a convenient and cost-effective way to find and book vacation homes, while providing property owners and management companies with a simple platform to operate and market their rental properties.
These companies are changing how consumers think about and book accommodation, and as a result, are reimagining the travel and hospitality industries.
As a hotelier, it is now vital that you are knowledgeable about the rise of the short-term rental industry and how it can affect your hotel’s business.
Why do you need to take notice of short-term rentals?
As with all sectors of the hospitality space, the COVID-19 pandemic seriously impacted the short-term rental industry.
In the early stages of the pandemic, many countries imposed travel restrictions, causing a decline in demand for short-term rentals, much like hotels. However, as restrictions began to lift in various regions, there was a resurgence in demand for short-term rentals that eclipsed previous years.
With increased concerns over safety and cleanliness, people began to seek the more isolated, self-contained, private accommodation offered by short-term rentals, instead of hotel stays.
This all led to a sustained increase in demand for short-term rentals in most locations and has allowed them to capture some of the market share previously held by hotels, as shown in the graphic below.
Estimated short-term rental market share vs. overall hospitality market
Short-term rentals now have an enormous presence in many markets around the world, with markets now having more vacation rental rooms than hotel rooms (as we will touch on later) and travelers are increasingly adopting short-term rentals.
Although short-term rental accommodation began life as a supplement to the hotel industry, they are now showing substitute characteristics and are directly competing with hotels.
Customers compare and consider the price and value offered by the two products when booking rooms.
It is clear that the hotel and short-term rental industries are converging.
For example, the provision of aparthotels - serviced apartment complexes with hotel-style features and booking system - from the top 10 hotel brands increased by 8% since the pandemic and concierge-type provision is increasing in short-term rental, with 68% now providing these additional services.
While these industries are not yet fully converged, the overlap is growing at an alarming pace.
This convergence can be broken down into five key areas:
Global inventory growth of short-term rentals
Hotels and short-term rentals now compete for the same guest
Rapid professionalization of short-term rental property management
Hotels and short-term rentals now compete on price
Short-term rentals and the impact on hotel occupancy
Global inventory growth of short-term rentals
The short-term rental industry has seen exponential growth over the past few years, with many markets now having more short-term rental rooms in supply than hotel rooms.
In Brazil, for example, there are 68% more short-term rentals than there are hotel rooms, in India there are 44% more short-term rental listings than hotels.
In Europe, the number of short-term rental listings has increased from 5,559,151 units in January 2022 to 6,624,483 at the beginning of December 2022.
Over the same period, North American listings grew from 2,459,916 units in January 2022 to 3,565,583 units at the beginning of December.
Meanwhile, 900,000 properties were added to Airbnb’s global listings in 2022 to close the year with 6.6 million properties. This was despite their decision, in July 2022, to shut down their domestic business in China, and remove all of their mainland China listings.
Florida State University research has found that in the ten years following Airbnb’s 2008 launch, for every 1% increase in Airbnb supply in a city, hotel revenue declined by 0.02%.
Evolution of vacation rental listing count per world region
Real estate investing is big business and property managers saw their short-term rental portfolios grow by an average of 41% in 2022, and most expect their portfolio to grow by 96% in 2023.
While these numbers are significant, when analyzed at a city level, they show the true scale of the growth of the short-term rental business.
In US cities such as Atlanta, Houston, Las Vegas, and Miami there has been an increase of over 25% in short-term rental listings since 2019, bringing the total number of listings in those cities above 10,000.
As we look ahead, further growth is certainly on the horizon. In Latin America, inventory is expected to grow by 125%, while in Europe and North America, supply is expected to grow by 50%.
And while the average booking revenue reported by property managers increased by 79% in 2022, that number is expected to rise to an average of 97% in 2023.
Short-term rental inventory growth by region in 2022
While the outlook looks rosy for short-term rentals, local authorities worldwide are implementing regulations on vacation rentals where the number of homes available for workers and residents in popular tourist cities has been drastically reduced.
Paris, Barcelona, and Amsterdam have some of the most strict policies in Europe, leading to a drop in supply of 18% in the Netherlands, while London plans to implement a 90-day annual limit.
Barcelona has banned privately run short-term rentals altogether and has more cumbersome legislation to counter professional takeovers by businesses buying up and renting out multiple apartments and avoiding the property taxes paid by hotels and private rentals.
Nevertheless, the overwhelming gains in supply growth made by short-term rentals since their inception into the hospitality industry pose a considerable threat to hotel operators. This is especially true as this growth is only increasing and several other factors are feeding into the overall development of this new sector.
Hotels and short-term rentals now compete for the same guest
Short-term rentals were a very popular accommodation choice pre-pandemic, and their popularity has soared since then.
With fewer touchpoints and less social interaction, short-term rental options were viewed as a safer option for guests desperate to travel after months of lockdowns.
Working from home now being an option also meant that people had more freedom and flexibility to work from anywhere.
Guests could travel for longer, soaking up new experiences in a home-away-from-home environment, paving the way for “bleisure travel”(part business travel, part leisure travel).
And, while hotels have also seen their fortunes turn around since the pandemic there is a growing perception that short-term rentals are eating into the traditional accommodation market share. In short, Airbnb and hotels are competing for the same guests.
A pre-pandemic survey showed that once travelers experience alternative lodging, they are much less likely to prefer hotels.
While 79% of respondents preferred hotels, to begin with, that number fell to 40% for those who had also used short-term rentals, indicating that short-term rentals were eating into 39% of hotels’ traditional target market even before the pandemic.
Phocuswright research shows that 35% of short-term rental users in 2019 were first-time users. That number grew to 43% in 2020. 46% of those who paid for lodging in 2019 and 2020 have also stayed in a short-term rental at least once, with almost 50% of consumers booking lodging turned to short-term rentals.
More recently, the 2022 summer occupancy comparison between short-term rentals and hotels shows that short-term rentals were up 22% on 2019 levels. Hotels saw a higher occupancy of just 9% in 2022.
Airbnb’s 2022 financial results show that they sold 393.7 million nights and experiences in 2022 - a 31% increase on 2021, and a 20,4% increase on 2019, pointing to the growth in the short-term rental market and increased competition in the hospitality industry overall.
The offerings may be fundamentally different between hotels and short-term rentals. Yet, that same guest may also look for a short-term rental alternative for a longer stay, where they have access to a fully furnished apartment, with improved workspace functionality and more flexibility than they would in a traditional hotel room.
Asked why they prefer short-term rentals over hotels, survey respondents ranked location, better value for money and more living space as the most important reasons to choose short-term rentals. Access to a kitchen and laundry and a uniquely home-away-from-home feel were also seen as priorities that influence their choice.
Top 10 reasons why travelers chose to stay in short-term rentals
Hotels are often perceived to be more expensive than short-term rentals but offer a level of service, cleanliness, quality and convenience that guests can consistently expect.
Whether it’s a swimming pool, restaurant, or room service, guests have an idea of what to expect based on the brand, star rating and price.
On the other hand, short-term rentals are often perceived as more budget-friendly, more authentically local, and providing a more culturally immersive experience to guests.
Guests will choose their accommodation depending on the location, the type of property, their budget, their purpose of travel, and their lengths of stay, meaning that hoteliers and Airbnb hosts are competing for the same guest.
Distribution channels that once catered to a specific sector have also converged and now offer listings for both hotel and short-term rental options. For example, Airbnb now also lists boutique hotels, while Booking.com also lists vacation rentals, giving prospective guests more options than ever before.
Where hotel online penetration in 2022 was 51%, short-term rentals saw 86% online penetration in 2022, reaching its expected peak of 88% in 2025 through these online channels.
Variation in OTA Reservations vs. 2019
In the eyes of your guests, Airbnb listings fulfil a specific preference based on any number of factors.
But when 45% of potential customers are looking at both hotels and short-term rentals, then the results are clear: your competition has increased.
Rapid professionalisation of short-term rental property management
Along with the supply growth, the increase in demand and the merge of customer profiles with hotels, there has also been a rapid development of professionalism within the alternative lodging industry.
This is largely due to the rise in tech platforms, such as Airbnb and VRBO, which simplify the process for homeowners to list their properties.
Strict guidelines for hosts and properties, as well as the recent addition of AirCover for Airbnb hosts, and Ask a Superhost, make the onboarding process smoother for new hosts, whilst also providing a safety net for guests and hosts should anything not go according to plan.
Airbnb has also expanded into immersive experiences through its Adventure platform, while verified professional services can be found through its Airbnb Plus feature.
What started as an extra revenue stream, or passive income, for many property owners on their own home or a second home, has now seen a surge in professionally operated property management companies running the day-to-day operations of their properties.
Some management companies may operate a handful of properties, but more and more management companies have hundreds and even thousands of properties in their portfolio.
This includes anything from marketing strategy to bookings, to servicing and maintaining properties, but has also grown to include concierge services and amenities more often found in traditional hotels.
On top of this, automated check-in, and key handling by property management companies means that guests and rental owners have a hassle-free experience.
Overall, the percentage of vacation rental managers that are using or expecting to start using industry technology, such as a property management system, channel manager, and dynamic pricing, has increased from 74% to 80% over the last year. Those who have adopted technology and are utilizing the data insights have seen an 85% growth in revenue.
Short-term rental data usage vs revenue growth in 2022
The adoption of technology used in professionally managed inventory across world regions has also risen. Europe has seen a 21% increase in professional supply share since 2018, while Asia has seen a 62% rise, and South America, a 50% rise.
Percentage growth of professionally managed short-term rental inventory across world regions
As the short-term rental industry has matured it has become more and more technologically sophisticated. Short-term rental operators are more professional in their marketing, distribution and pricing strategies and are steadily eating into traditional hotels’ market share.
Hotel commercial teams will need to be savvy as they are competing for the same guest as short-term rentals are also starting to compete on price.
Hotels and short-term rentals compete on price
Both the price of a hotel room and a short-term rental property can vary greatly, depending on the location, size, time of year, and amenities offered.
On average, short-term rentals tend to be less expensive than hotels but nowadays this is not always the case. Recently, Airbnb Chief Financial Officer, David Stephenson, said, “ADRs are 36% higher than they were in 2019”.
Hotels typically have more amenities and services, such as room service and daily housekeeping, which increases the room cost. Whereas short-term rentals often charge a separate service and cleaning fee to guests per stay, which can be expensive and has proved highly controversial for Airbnb.
Short-term rentals will likely still present better value for larger groups or families, but as short-term rentals professionalize, prices are also converging. In most cases, travelers will now weigh up the best value in terms of prices and amenities of both options in a particular location and at a specific time to determine which to book.
Short-term rental property managers are also now implementing dynamic pricing strategies in their listings. Dynamic pricing involves adjusting the price of a property based on demand and availability, based on factors such as the time of year, local events, and occupancy rates.
The use of dynamic pricing will help short-term rental owners maximize their revenue and attract more bookings, potentially taking them away from hotels in the same market.
This is achieved by offering lower prices during slow periods and higher prices during peak seasons or special events for example.
Many short-term rental platforms, such as Airbnb have built-in tools that allow property owners to set dynamic pricing for their listings. Airbnb’s SmartPricing feature automatically changes pricing based on demand. And there is now a wide range of more advanced pricing tools available for short-term rental property owners.
Worldwide 55% of properties are priced dynamically. Another 18.5% of property owners/managers say they want to start implementing dynamic pricing strategies this year. 75% of property owners are using or plan to start using technology solutions to do so, making the short-term rental industry a technologically adept sector.
As the short-term rental industry has grown, property managers have become more aware of the importance of revenue management and are using similar strategies to maximize their profits.
Short-term rentals can influence the demand for hotel rooms in your market. It is now crucial to closely monitor short-term rental prices in your market with the appropriate software and factor it into your revenue management strategy - short-term rental managers who are now more sophisticated, will likely be doing the same for hotel room prices.
Short-term rental pricing in focus: USA
The US is a market leader in the vacation rental space. Here reservations soared above pre-pandemic levels in 2022 according to our data.
As we closed out 2022, demand in the country spiked to the point where double the reservations were made in the first week of December 2022 as compared to 2019.
We predict that 2023 will be an extremely strong year for rental booking growth globally, the US is likely to continue to be one of the best-performing markets.
Using a snapshot of 10 major metro markets in the US, we can see continued strength in pricing in the first half of 2023, which reflects strong demand and booking pace.
Advertised average prices for short-term rentals in 10 US markets in the first six months of 2023
Only Miami and Orlando fail to consistently increase in price throughout 2023, which may reflect high seasonality in these destinations. price throughout 2023, which may reflect high seasonality in these destinations.
Short-term rentals and their impact on hotel occupancy
Following the rapid growth in the supply of short-term rentals, it may be expected that there would be a fall in their occupancy rates. However, compared to the winter of 2019, short-term rental on-the-books is 96% higher in 2022/23.
While this may be eating into hotel occupancy, there is a positive correlation between short-term rental occupancy and hotel booking pickup.
Research by Lighthouse indicates that alternative lodging availability decreases earlier than hotel availability for the same dates. This decrease in alternative lodging availability is an early indicator of high demand for the market that will also show in hotels after the short-term rentals.
For most destinations, short-term rental pickup follows a similar curve to hotel bookings but the research indicates that with short-term rentals, bookings are being made much earlier.
Hotels typically have more inventory to sell for any given date, short-term rentals encourage earlier bookings because of the uniqueness of each property, its location, experiences and pricing.
This means that if you are monitoring short-term rental occupancy for future dates you will have an early indicator of high-demand dates for your hotel.
Having short-term rental data at your fingertips allows you to monitor your entire competitive set. And now, following Lighthouse research, it can also give you the edge over your traditional hotel Comp Set by forecasting demand before them and acting on it with the correct pricing and marketing strategies.
How can you adapt to the convergence between the hotels and short-term rental industries in 2023?
Know your competition and what makes your hotel competitive
Research the alternative lodging offerings in your local market to get a better understanding of the types of properties, the prices being offered, and their availability over time.
This will give you a sense of your competition in your area, identify any potential threats to your business, and help you understand how your hotel and offering compare.
Know your target market
Determine who your target market is and what they prioritize when searching for an accommodation provider.
With this information, you can begin to serve your target audience with an offering that better meets their needs, and makes their decision-making easier by bringing your hotel to the forefront of their consideration.
Offer unique guest experiences
Determine what makes your hotel unique, and how you can differentiate it from short-term rental properties in your market either by offering unique experiences, services or amenities that Airbnb properties cannot match.
Implement software that leverages short-term rental data
Ensure your data provider supplies you with quality data that gives you a complete view of your competitive landscape, including the Airbnb listings available in their area. Use industry-leading software to judge how it may impact your business, your pricing, and your demand.
By monitoring your true Comp Set, of hotels and short-term rental properties in one data set, you can identify real market dynamics and act on changes in your market before your competitors with a pricing and marketing strategy to drive superior business performance.
Hoteliers have long dismissed the disruptive nature of the short-term rental industry, viewing it as a totally different type of accommodation that doesn’t infringe on the demand for hotel rooms.
However, this is no longer the case. The short-term rental space is now very much bleeding into the hotel industry, and vice versa.
Consumers consider short-term rental properties as viable alternatives to hotel rooms, not just a supplementary source of accommodation operating in a wholly different sector.
The growing convergence of these two industries means any remaining ambivalence towards short-term rental properties and lack of decisive action, may prove costly.
The global short-term rental industry is expected to continue growing in the coming years, driven by this increasing demand for alternative travel accommodation.
To put some figures to this growth: Airbnb enjoyed its first profitable full year, generating $1.9 billion of net income in 2022.
Its full-year revenue climbed 40% to $8.4 billion. This included its most profitable quarter in its history, when, in Q3 of 2022, Airbnb delivered $2.9 billion in revenue, up 29% on the previous year’s third quarter.
Airbnb is now more valuable than the top 3 hotel companies combined, with more global room listings. This highlights the sheer power of the short-term rental industry and one that is stealthily encroaching on your business.
To stay on top of your new competition you need to start leveraging short-term rental data.
The answers lie in the data. High-quality data on short-term rental properties in your market is your closest ally when navigating the rise of short-term rental accommodation and its impact on your hotel.
As supply and demand lines blur between short-term rentals and the hotel industry, so does the competitive landscape in which you are operating.
Likely, you are now losing business to short-term rental properties without realizing it.
Couple this with particularly dynamic market conditions across the entirety of the hospitality industry and it becomes wholly apparent that you need data from the vacation rental space, as well as your traditional Comp Set, to have a full understanding of your market.
With comprehensive data insights into your silent competitors, that until now had slipped under the radar, you can make confident commercial decisions, in the knowledge that these are based on your hotel’s true Comp Set.