Year of the Tiger: What’s Next for the Short Term Rental Boom

By
Real Estate Technology with Husky Marketing

The sharing economy is at the top of the 2022 industry watchlist, and the spotlight is on the short-term rental (STR) market as it continues its upward trajectory. It was two years ago, and a few months before the Covid-19 pandemic was announced, when industry insiders and analysts believed STRs had reached an apex. Then, STR revenue had exceeded expectations by almost $30 billion with an average revenue per user (ARPU) at $110.

 

As the pandemic’s early days unfolded, the STR market experienced a 30% drop. But by the end of Q4, the STR market reported positive gains earmarked at a 60% growth rate. The STR market had taken one step back and five steps forward. Optimism remained intact heading into 2021, which proved to be a year of tech-enabled expansion that exceeded expectations.

 

Tech-Empowerment in the STR Market

 

‘Today, advanced technology is leading industry development,’ says Emir Dukic, CEO of Rabbu. Rabbu is a turnkey platform for real estate investors looking to buy properties as short-term rentals. ‘Smart technologies have streamlined the hosting experience. The latest software and smart device applications allow property managers more control and flexibility over reservations and client services, and offer guests a safer, more seamless way to stay.’ 

 

The most significant industry development involves Artificial Intelligence (AI) market integration as it relates to adaptive marketing and property revenue forecasting. Rabbu recently released Insights, the only no-cost tool of its kind, to help investors, buyers, and hosts understand the potential of a property. Insights gathers real-time data from comparable STRs in the surrounding area, including daily rates and average occupancy, and offers a seasonally adjusted, three-tiered analysis of a property’s potential monthly earnings. These and other tech-heavy, asset-light solutions are taking the guesswork out of investing and the grunt work out of hosting, making STRs a more passive, more predictable investment.

 

The STR Ecosystem In The Recovery-Era

 

In 2013, a city government report found that STRs in California’s Coachella Valley generated over $270 million. Six years later, STR revenue had climbed 83%. San Diego city leaders projected five years ago that the STR industry would produce $500 million in city revenue. Additionally, the industry was predicted to create 3,000 new jobs. Last year, San Diego collected $90 million in STR tax revenue. 

 

‘The STR story is similar in cities around the country,’ says Dukic. ‘The home sharing economy isn’t only a lucrative path for investors, it’s also a channel for economic recovery at a community and state level.’ Since the market’s pandemic-era rise, more jobs have grown in the space. Employment portals now offer job listings with titles like “guest experience reservation associate,” “reputation management specialist,” and “remote customer support agent,” all of which have stimulated local growth while serving on the frontlines of STR development. In return, neighborhoods are experiencing economic revitalization due to traveler spending habits.

 

To support this positive economic force, many US states have enacted legislation that reverses or prevents short-term rental bans, including Michigan, Arizona, Florida, Idaho, Indiana, Tennessee, and Wisconsin. Now, STRs are expanding the notion of heritage travel by taking a proactive role in historic preservation efforts in Boston, New Orleans, and San Francisco. The top North American city is also the number one travel destination in the US, Las Vegas, which garners 22% command of the STR market. In second place is Greensboro, North Carolina at roughly 10%.

 

2022 Market Outlook: A Still-Rising Line

 

For 2022, industry watchers are anticipating greater demand for urban destinations, while rural STRs also continue to see strong and sustained uptake among travelers. After the first round of lockdowns were lifted, demand in rural market destinations skyrocketed; people wanted to experience a change of scenery with access to more space and out-of-city settings after a year or more of staying inside. Figures released in October revealed that STR bookings for Thanksgiving had surged 65% year on year, while Christmas and New Year reservations had skyrocketed by 89%. In the final weeks of Q4, STR insiders had already dubbed the year the ‘never-ending summer’. Destination markets reached peak season months in advance and were extending end periods later than previous years. 

 

In the months leading up to the pandemic, questions about whether STRs could be profitable in small-town destinations were a priority. Now, the demonstrated strength of those markets is opening up new avenues for investors, homeowners, and communities in need of post-COVID strategies.' Improved and increasingly affordable technology developments are offering hosts and investors the power to improve their guest transparency. Integrated booking solutions make finding a short-term rental as easy, if not easier, as booking a hotel.

 

As the space continues to mature, more institutional activity is shaping the investment side of the equation. Business travel for meetings and conferences is becoming a pillar of demand in the market. Landlords are adopting a hybrid approach within their multifamily buildings, designating some units as permanent short-term rentals to capitalize on the higher nightly averages, more frequent payments, and stronger guest demand. New vendors are populating the space with solutions for adaptive property staffing, including cleaning and maintenance, and improved hands-free technologies. ‘When one door closes, another one opens,’ Dukic says. ‘And if COVID-19 caused a closed door anywhere in the real estate market, it has led to hundreds and hundreds of open-door, incredibly profitable short-term rentals.’



Comments (1)

Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Great information.   Thanks for sharing and have a wonderful day!

Feb 01, 2022 07:16 AM